Arjun Nigam

CHAPTER 1
- Management is the art of getting things done through people in organizations
- Managers are not just responsible for making sure the business runs smoothly, but they also
assist in building a purpose and direction for the business. They can also change the business
as a whole

THE FUCNTION OF MANAGEMENT

- At first there were five main functions of management: planning, organizing, commanding,
coordinating and controlling
- Later, they simplified the functions of management into four main functions: planning,
organizing, controlling and leading (this mixed coordinating and commanding)
Planning & Strategizing:
- Planning is the formal process whereby managers determine certain goals, think of ways to
implement those goals, assign different tasks to different individuals, evaluate the success of
the actions, and make changes accordingly
- At the senior level, planning involves coming up with the overall strategy for the entire
organization
- However, planning goes beyond strategy development, to the regulation of the entire
organization.
- Planning = Strategies, but strategizing involves more than planning
- Strategizing is the act of continuously thinking of different strategies to attain ones goals
- Planning is a formal process of determining an organizations strategies, strategies can also
occur from the lack of planning
- Managers at all levels of an organization strategize, and then later these form the
organization’s strategies
- Strategizing is more than planning, since it involves continuously thinking about alternative
strategies.
Organization:
- Organization is the process that involves determining who in the organization will be
responsible for what tasks, where decisions will be made, who reports to whom, and how
different parts of the organization will coordinate to pursue a common goal.
- Organizing typically involves dividing the business into sub units based on functional tasks
- Organizing is apart of Planning and Strategizing
Controlling:
- Controlling is the process of monitoring performance against goals, intervening when goals
are not met and taking corrective action when necessary.
- Controlling is linked to planning & strategizing and organizing
- An important part of controlling is creating incentives (benefits for the employees which
motivates employees to pursue a particular course of action) which align the interest of the
employees to that of the organization
Leading And Developing Employees
- Leading is the process of motivating, influencing and directing others in the organization to
work productively and achieve a certain goal
- An important factor of leading is developing employees
- Developing employees involves hiring, training, mentoring and rewarding employees in an
organization.
- It if often said that people are the most important asset of an organization
- Human Capital (the knowledge, skills and capabilities imbedded in individuals) is a source of
competitive advantage
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TYPES OF MANAGERS:
- 3 Types of Managers: General Managers (responsible for the overall performance of an
organization), Functional Managers (lead a particular sub unit) and Frontline
Managers(manage employees who are not managers)
CEO
Division Division Division
R&D Sales
Team
Corporate Level General Managers:
- The main general managers in the corporate level is the CEO who leads the entire enterprise
- The CEO determines the different strategies of the organization, how the organization will be
organized or divided, exercise control over divisions, and they also develop the human capital
of the enterprise. Also manage relationships with the shareholders
Business Level General Manager
- They lead their division and are responsible for their division’s performance
- They convert the overall strategic vision into concrete plans and strategies for their division
Functional Managers
- Functional Managers are responsible for the performance of ONE organizational activity.
- They ensure that the different goals set by Business and Corporate level managers are met
- They are responsible for forming the human capital within their organizations
- They also organize their function into departments or teams
Frontline Managers
- Manage employees that are not managers
- Most complex organizations have many frontline managers
- They are critical to maintain the performance of an organization

BECOMING A MANAGER
From Specialist to Manager
- Journey into becoming a manger occurs when they are very good a specialist task for which
they were initially hired
- Sometimes the career beginning can be at a very introductory level and then escalate quickly
in mid-career.
- The successful may find themselves promoted into managerial roles for whatever their
background or initial functional assignment Ex. Accountants may manage accountants
- In these new roles, technical skills may be important

Mastering The Job

- The expectations of being a manager is often different from the reality of managers
- At first managers have a lot of work pile ups, and might struggle due to the fast-paced work
- Sometimes the subordinates might not listen to the managers
- New managers had no formal authority
- They have to learn how to influence the employees and their bosses, in order to get work
done.
- They earn trust and credibility through interpersonal interactions
- In order to get things done and to help their team succeed, they must work closely with a
network of peers or supervisors.
- They have to be network builders and good at managing relationships
- New managers go through a psychological change within the first year of their managing the
business/ subunit/ function.
- They learn how to get things done by their ability to persuade others
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MANAGERIAL ROLES
- managerial roles are specific behaviors associated with the task of management
- Managers adopt these roles to accomplish the basic functions of management
- 3 Types of Managerial roles : interpersonal roles, informational roles, decisional roles
- These roles are rarely distinct.
Interpersonal Roles
- Interpersonal roles are roles that involve interacting with other people inside and outside the
organization
- Management jobs are people intensive- Managers spend about 66-80% interacting with
others.
- Managers at all levels are figureheads
- Figureheads greet visitors, represent the company at community events, serve as
spokespeople and function as representatives for the organization
- Mangers also take on leadership roles, to get their work done.
- Leadership roles involve influence, motivate and direct others in the organization.
- A central part of leaders is to give their organization a sense of direction or purpose. They do
this by planning.
- As Liaisons, managers connect with people outside their intermediate units.
- These people include supplies, buyers, and strategic partners. An important function of
liaison’s is to create a network of relationships
Informational Roles
- Informational roles are concerned with collecting, processing and distributing information
- Managers can collect information by many sources, both inside and outside the organization
- As monitors, managers can scan the environment both outside and inside the organization
- Managers rely on both formal and informal channels to collect information that can assist in
effective monitoring
- By monitoring, managers try to gain knowledge about the performance of the organization
and whether changes should be implemented.
- Monitoring is apart of the controlling function of management
- In the dissemination role, managers continuously inform staff about the company’s direction,
as well as specific technical issues
- As spokespersons, managers deliver specific information to people and groups outside their
department or organization.
- These are more than figurehead responsibilities
Decisional Roles
- This includes discovering problems, weighing options, making decisions, and making sure
those decisions are put into action
- Interpersonal and Informational roles deal with knowledge, decisional roles deal with action
- In their role as entrepreneurs, managers must make sure that their organizations innovate and
change when necessary, developing or adopting new ideas and technologies and improving
their own products and processes.
- As disturbance handlers, managers anticipate different problems as they arise, and resolve
them.
- As resource allocators, managers decide how to best allocate their resources so that the
organization’s goals are met, since resources are scarce.
- Managers are in charge of product development
- Negotiating is continuous for Managers.
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- Skilled negotiators are most likely to successfully implement strategy and raise the
performance of the organization, by lowering input costs, striking better deals with
customers, gain access to high quality resources and better organize their subordinates.

SOME QUALIFICATIONS
- Mintzberg’s model tells us what managers do, but not what they SHOULD do. Some roles
may be more important than others
- Mintzberg does not mention some important roles of managers.
- Mintzberg’s model is context dependent. The managerial role model described what all
managers do in all situations, however, in reality what mangers do depends partly on the
situation.
- The model does not tell us HOW to perform the roles.

MANAGEMENT COMPETENCIES
- To fulfill the managerial roles, managers must have competencies (a manager’s skills, values
and motivational preferences).
SKILLS
Conceptual Skills
- Conceptual skills are the ability to see the big picture.
- Conceptual skills are the foundation for strategizing and organizing
- Conceptual skills are not a managers capacity for thinking analytically. Although rational
logical thinking is important, managers must be able to think outside the box.
- Conceptual skills are required by all levels of managers, but are most important in the
corporate level general managers (CEOs)
Technical Skills
- Skills that include the mastery of specific equipment or following technical behavior
- Frontline Managers work directly with technical skills
- Without these technical skills, these managers would be performing ineffective mentoring
roles.
- Technical skills are more important to frontline managers, then senior managers, because
frontline managers work directly with the technical staff
- Although senior managers do not need technical skills as much as frontline managers since
they interact more with other managers, technical skills are important for managers in all
levels
Human Skills
- The human skills required by managers are the ability to communicate, persuade, manage
conflict, motivate, coach, negotiate and lead.
- Successful managers use their human skills to meet the need and goals of their own team
members with people in other work units, as well as the needs to customers, suppliers and
others outside the organization
- Human skills goes beyond interacting, and requires managers to be self aware and have a
sense of self-management
- Manager’s cannot get work done through others if they cannot manage themselves
VALUES
- Values are our ideas of what is right and what is wrong
- Values tell us what we “ought” to do
- They direct our decisions and actions
- Enacted values are values that actually guide behaviors
- Espoused values are what people say is important to them.
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- Shared values (values held by numerous people) is important in a workplace, since it creates
a sense of collective purpose and increases loyalty.
- Shared values are important since they help steer the organization into a certain direction and
it guides managers through different circumstances
Managing With The Right Values
- Managers require strong and right values.
- Managers need to embrace values that are consistent with the situation in which they work
- In all situations, managers must act with ethical values (values that society expects people to
follow, since it distinguishes right from wrong in that society)
- These values are similar across most cultures
MANAGERIAL MOTIVATION
Desire To Compete for Management Job
- Managers are most successful when they are willing to compete for that job.
- Managers compete for positions higher in the hierarchy.
- Sometimes top level managers lose their position since they lose the competition or fight.
Desire To Exercise Power
- Manager’s motivation to seek power.
- They do not want this power for personal gain (personalized power orientation), they want
the power to accomplish the organization’s objectives (socialized power orientation)
Desire To Be Distinct and Different
- Managers must have the motivation to be different from the people that they lead
- Managers need to negotiate the interests of their shareholder’s, which is why they need to be
different, so that they can make neutral decisions
- Successful managers have low needs for affiliation- desire to be liked
- Managers need to take center stage to communicate the organization’s future direction
- Employees look at managers as role models of future behaviors
Desire To Take Action
- Managers must motivate employees to achieve the organization’s objectives

STAKEHOLDERS & STAKEHOLDER MANAGEMENT

- Stakeholder is an individual, institution or community that has a stake in the operation of a
business.
Stakeholder and the Organization
- All stakeholders are in an exchange relationship with the organization.
- Each stakeholder group provides the organization with certain resources and in return, they
expect their interests to be satisfied.
- General Public, Local Communities do not directly transact with the organizations, but they
have a stake in the operations of the business
Taking Stakeholder Into Account
- If managers don’t take stakeholders into account, the stakeholders may withdraw their
support
- Meeting the needs of stakeholders can allow a business to prosper and exist in the long run
- The goals of different groups may conflict, making it hard for managers to meet the needs of
all stakeholders. In order to resolve this, managers must give the most important stakeholders
the greatest priorities
- Managers must identify the stakeholders, identify stakeholders interests and concerns,
identify the claims the stakeholders place on the organization, Weigh stakeholders by their
importance to the firm, Identify actions to satisfy various stakeholders, Take actions starting
with the claims of the most important stakeholders
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- In the long run, satisfying the stakeholders means to pay close attention to their customers
and employees.
- Organizations must not disregard public concerns, and they must not put the claims of
shareholders above all other claims. If a manager has a failure to do so, it can contribute to
financial disasters in the organization.
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CHAPTER 2

THE EVOLUTION OF MANAGEMENT THEORY

Scientific Management Theory

- After industrialization, many managers just had technical knowledge, and were unaware
about how to cope with the social problems that would occur.
- They began to look at new ways as to how to manage their resources, as well as ways to
increase efficiency.

Job Specialization and the Division of Labor

- Employees who specialize in a particular job, become much more skilled at their particular
tasks.
- Increased levels of job specialization (the process by which a division of labor occurs as
different employees specialize in different tasks), increases efficiency and leads to higher
organizational performances.

F.W Taylor and Scientific Management

- Scientific Management is the systematic study of relationships between people and tasks
for the purpose of redesigning the work process to increase efficiency.
- Taylor believe the production process would become more efficient if the time spend to
produce a unit of output was decreased.
- Increased specialization and division of labor can increase efficiency.
- The most efficient division of labor can be created through scientific management
- 4 Principles to increase efficiency:
1) Study the way workers perform their tasks, gather all the job knowledge that workers
possess, and experiment with ways of improving how the tasks are completed
2) Codify the new method of preforming tasks into written rules
3) Carefully divide employees based on their different abilities to perform different
tasks, and train them to perform the different tasks.
4) Establish a fair or acceptable level of performance for that task, and reward
employees who go beyond that level of performance
- Managers used the principles of scientific management selectively. Instead of rewarding
employees performing exceptional work, they gave them more work to do
- Scientific management brought many employees more hardship then gain, causing the
employees to hide their job knowledge from the managers

The Gilbreths
- The Gilbreths refined Taylor’s theory and made many contributions to the time and
motion studies.
- Their aims were to (1) break up a particular task into individual actions and analyze each
step to perform those actions. (2) find better ways to perform each step (3) reorganize
each step so that the action as a whole can be performed more efficiently.
- Jobs in accordance with Gilberths theory were repetitive and boring causing employees to
be dissatisfied.

Administrative Management Theory

- Administrative Management is the study of how to create an organizational structure that
leads to high efficiency and effectiveness.
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Theory of Bureaucracy
- Created my Max Weber
- After the Industrial Revolution, he came up with the theory of bureaucracy (A formal
system of organization and administration designed to ensure efficiency and
effectiveness).
- Obedience is owed to a manager because he/she hold a position that is associated with a
level of authority
- Although in a bureaucracy, people should occupy their position depending on their
performance, however this rule is not always met, since social networks plays a role in
the position of an employee
- The different authorities and tasks associated with the different position must be clearly
stated. This allows managers and employees to clearly know what is expected of them
- Positions should be arranged hieratically for authority to be exercised efficiently. This
helps employees to know who they should report to, and who will report to them
- Managers must form a well-defined system of rules, standard operating procedures and
norms so that they can effectively control behavior within an organization. These provide
guidelines to improve the performance
- Weber believed an organization that had the following five characteristics would be
considered as a bureaucratic organization and improves the performance.
- If bureaucrats are not managed well, many problems can be formed.

Foyals Principals of Management

- Foyal identified 14 principals that he believed were essential in order for an organization
to be efficient.

Behavioral Management Theory

- Behavioral Management is the study of how managers should behave in order to motivate
employees and encourage them to perform at high levels.

The Work Of Mary Parker Follett

- She believed that knowledge and expertise, rather than someone’s former position,
should decide who would lead at any particular moment.
- She believed that power is fluid and that it should flow to the person who can best help
the organization achieve its goals.
The Hawthorne Studies and Human Relations
- This studied attempted to see the relationship between the characteristics of the work
place setting and the performance of the workers
- One of the main implications of this study was that the behaviors of the managers and
employees in a work setting are important in explaining the level of performance.
- Managers must understand the workings of the informal organization (the system of
behavioral rules and norms that emerge in a group) when trying to manage the behavior
in an organization
- Hawthorne studies demonstrated the importance of understanding how the feelings,
thoughts and behaviors in an organization affect the performance.

Theory X and Theory Y

- Theory X: the average employee is lazy, dislikes work and will try to do as little as
possible.
- Employees have little ambition and wish to avoid responsibility
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- To keep employees performance at a high level, the managers must supervise the
employees closely, and control their behaviors by means of rewards and punishments
- Theory Y: employees are not inherently lazy, do not naturally dislike work, and if given
the opportunity, will do good for the organization.
- The characteristics of the work setting will determine whether employees consider their
work a source of satisfaction or punishment
- Managers do not need to control employees’ behavior closely, since they will naturally
conduct self control when they are committed to the organization’s goals

Management Science Theory:

- it focuses on the use of rigorous quantitative techniques to help managers make
maximum use or organizational resources to produce goods and services
- 3 concerns:
1) Quantitative Management: use of mathematical techniques to help mangers
decide.
2) Operation Management: provides managers with a set of techniques that they
can use to analyze any aspect of an organization’s production system to
increase efficiency
3) Management Information System: help managers design information systems
that provide information about events occurring inside the organization, as
well as in it’s external environment.

Organizational Environment Theory

- An important milestone occurred when there was a shift from how managers can control
the behavior within an organization, to how managers control the organization’s
relationship with its external environment
- Organizational environment is the set of forces and conditions that operate beyond an
organization’s boundaries but affect a manager’s ability to acquire or use resources
- Resources in the organizational environment include the raw materials and skilled people
that make the goods or services, as well as the support groups (ex. Customers) that
provide the organization with financial resources.

The Open-System View

- Most influential theory about Organizational Environment.
- This viewed organizations as an open system (a system that takes in resources from its
external environment and coverts them into goods and services that are then sent back to
that environment for purchase by customers)
- It is said to be “open” since the organization interacts with the external environment in
order to survive. It is open to the environment
- A closed system is self-contained and thus not affected by changes that occur in its
external environment.
- Closed system organizations that ignore the external environment and fail to acquire
inputs are likely to experience entropy (the tendency of a system to dissolve and
disintegrate because it loses the ability to control itself)
- Organizations work at higher levels when its parts work together, rather than separately.
- Synergy (performance gains that result when individuals and departments coordinate
their actions) is only possible in an organized system

Contingency Theory
- Suggests that there is no one best way to organize
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- It is the idea that managers’ choice of organizational structures and control systems
depends on characteristics of the external environment in which the organization operates
- An important characteristic is the degree to which the environment is changing. This
includes changes in technology, the entry of new competitors and the unstable economic
conditions
- The faster the changes, the greater the problems associated with gaining access to
resources and the greater is the manager’s need to find ways to coordinate the activities
of people in different departments in order to respond to the environment quickly and
effectively.

CHAPTER 3

The Big Picture

- An efficient and effective operating platform can be assessed against three fundamental
characteristics:
1) Commercial Endeavors: the markets than an organization serves, the products and
services that it offers, and the needs it acknowledges to meet in the marketplace. Managers must
understand the demand/supply relationship that exists in a marketplace and the capacity and
capability of each competitor within the market to deliver products/services. This
relationship, along with the price/cost requirements, leads to a business systems that is
profitable to the organization
2) Employee Interaction: the value-creating skills an organization’s employees
bring to the marketplace. The success of many businesses lies within its labor force. The skills
of the employees enable the business to create value and to be profitable.
3) Organizational Efficiency and Structure: the reflection of the complexities of the
business activities that circulate within an organization. It is reflective of the infrastructure and
its related culture, which an organization creates, and the transaction process that it
develops to service the market place it targets.
- These three characteristics, when assessed jointly, result in an understanding of a business
system whose objective is the design, production, distribution and communication of goods and
services. These 3 factors form the business foundation.

What Is Business?
- “business” has several different, but related meanings
- In broad terms, Business can most easily be described as mission-focused activities
aimed at identifying the needs of a particular market or markets, and the development of
a solution to such needs through the acquisition and transformation of resources into
goods and services that can be delivered to the marketplace at a profit.
- Through the development of a business model, managers will attempt to gain the most
efficient and effective approach to the market place, by building the business model on
four core fundamental resource areas: assets, labor, capital and managerial acumen.
1) Asset is the infrastructure and resource base of the organization
2) Labour is the human resource base of the organization
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3) Capital is the money needed by an organization to support asset-based

expenditures, meet operating cash requirements and invest in the
development of new products and/or services, which the organization desires
to introduce into the marketplace.
4) Managerial Acumen is the foresight, drive, knowledge, ability, decision-
making competency, and ingenuity of the organization’s key individuals-its
owners or top-level managers. A key component of Managerial Acumen is
visionary leadership (the ability of managers to establish a direction for the
organization based on the needs identified in the marketplace, and the
mission of the organization)
- Combined, the application of these four core resource areas determines a company’s
business model (operational platform or structure that a business uses to generate revenue
or profit)
- The role of the managers is to recognize an opportunity to create a product, and to deliver
the service that it considered unique to the targeted customers, and this can be realized by
the effective use of the four resources the organization possesses (assets, labour, capital)
- Business owners should conduct a “strategy and 3C assessment” (capabilities, capacity,
competencies).
- Strategy= the different objectives an organization hopes to achieve during the planning
cycle
- 3C Assessment= analyzing the different resources available and the capabilities and
competencies it possesses. This defines the capacity of what the organization can or
cannot do, allowing them to make business decisions, which allows them to be superior
to their competitors.
- After “Strategy and 3C Assessment”, the management team forms a business plan via a
process called the business planning cycle, which outlines its focus and methodology for
using its resources to create valuable product and services that will be competitive in the
marketplace.
- Ideally, the unique position will lead to a competitive advantage (an advantage an
organization has over its competitors that enables it to generate more sales, achieve
greater margins, achieve a lower cost base, or attract and retain more customers)
- Assuming that the plan is executed in an efficient and effective manner, this revenue will
exceed the expenses associated with producing or delivering the product/service, thereby
generating a profit for the firm.
- This allows the company to grow through reinvestment of these profits, and the
expansion of the business opportunities.
- Businesses grow my executing numerous planning cycles over time
- Businesses need to create objectives, which allow them to achieve their goals, and these
objectives should be specific, measurable, actionable, and controllable (SMAC) by the
firm’s management team. And they should be achievable within the given time frame of
the planning cycle.
- The management must then allocate resources in a manner that allows them to achieve
their objectives and produce the desired results.
- Finally, the management must assess the success of their actions to achieve their desired
objectives, and determine adjustments to further grow the company within upcoming
planning cycles.
- If the organization does not achieve its objectives, the business is then most likely not to
achieve the results anticipated, and will need to redirect the current organizational efforts.
- Failure to meet the objectives of a planning cycle can be the result of poor positioning,
poor operational execution, or a combination of the two.
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- - for profit, and not-for-profit (businesses that do not make a profit, but want to deliver a
service) organizations, both need a competitive business model.
- Not-For-Profit organizations need to cover their operating costs

The Fundamental Objectives Of Business

- Short-term profit and long-term profitability and growth are equally important business
objectives
- Due to the inconsistency of the demand for products, businesses are continuously looking
for new markets and new opportunities that will lead to the growth of the organization
- The social and environmental responsibility is an organizational objective that is
becoming increasingly important
- On a global basis, consumers are encouraging-and in some industries, demanding- that
businesses operate and act in a manner that demonstrates social responsibility, with
respect to product development, resource consumption and operating process.
- They must also make business decisions with the highest ethical standards. Managers are
expected to put society, the organization and the organization’s stakeholders before
personal gains, when making decisions.
- These objectives also hold true for NFP organizations. Although their main objective
isn’t to gain profit, they still need money for reinvestment into the organization, so that
they can meet the needs of the community.
- NFP organizations also need to assess their service regularly to ensure that their services
remain meaningful to the customers they serve, and so that they can expand the services
- NFP organizations also have high level of social responsibility, since their core existence
is based on their ability to meet societal needs that are not responded to by for-profit
organizations.
- Organizations must make decisions that enable all three responsibilities to be considered
equally.
- Too much emphasis on short-term profitability may result in decisions that are
detrimental to long-term opportunities and fall short of social responsibility expectations

The Business Model and Profitability

- To determine how well a company is doing in a particular industry, it makes sense to
look at the company’s performance relative to that of its competitors
- The most common way of comparing how well a specific company is performing is by
measuring its profitability over a period of time, and in direct comparison with its
industry competitors.

The Difference Between Profit and Profitability

- Profit is the “bottom line” result an organization has realized for an identified, immediate
period of time. In simple terms, Total Revenue- Total Expenses=Profit
- Profitability measures how well a company is using its resources over a specific period of
time to generate earnings relative to its competitors.
- Profitability analysis is generally assessed over a period of time so that the efficiency and
effectiveness results can be compared on a period-over-period basis.
- Profitability enables managers to determine whether the operations has improved in its
effective utilization of its assets and capital
- It also compares competitors, showing which competitors are more effective in utilizing
their resources.
- The benefit of profitability analysis is that it levels the playing field between competitors,
recognizing that some may be significantly larger than others.
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Improving Profitability
- Companies are challenged to create new products opportunities, meeting evolving needs
in emerging markets, and streamlining operations, all in effort to improve immediate and
long-term profitability
- The challenge to improve profitability faces companies large and small.

Creating Value Proposition

- Businesses need to design, produce, distribute and communicate to the marketplace the
products and services they offer, and they do so through the development of a value
proposition (a statement that summarizes whom a product/service is geared toward and
the benefits the purchaser will realize as a result of using the product)
- It also communicates to the purchaser how the product or service differs from competing
products or services offered in the marketplace.
- In order to position themselves in the marketplace, companies develop value propositions
for the purpose of communicating to customers how their products or services are
different and the important benefits they offer.
- Value propositions are not driven strictly by tangible or functional product benefits. In
fact, many of the reasons why products or services are purchased have little to do with
the actual product itself, but more with the perceived benefits the product or service
offers.
- VP= Service Benefits +Product Benefits +Brand Benefits +Cost Benefits +Emotional
Benefits
- The strength of the value proposition is the perceived sum of your company’s ability to
deliver in each area noted within the value proposition equation versus the strength of
your competitors’ value propositions measured across these same benefit areas.

The Impact Of Price

- Purchases will assess the price/quality proposition of one organization and compare it
with it’s competitors, which is why businesses must off the most attractive price/quality
relationship
- The price/quality relationship is what the consumers are being asked to pay for a product,
and that they expect to receive (benefits- can be tangible or intangible)
- The more unique, important, and value-driven your product is, the greater the opportunity
to communicate to the potential purchaser a value proposition that has a positive
price/quality relationship and that is considered superior to those of your competitors.
- Being in business is not about having the lowest prices, its about understanding the needs
of the marketplace and offering a product to respond to those needs. And also
understanding that the different segments within the market will have different feelings
about how those needs can be met.
- In developing your value proposition, take into account 5 questions:
1) What is my cost base for producing and/or delivering this
product/service to the marketplace, and how does this compare to that
of my main competitor(s)?
2) Do I have a strong brand profile in the marketplace that I can leverage
as part of the benefit to the customer when purchasing this product?
3) Are there emotional benefits that the customer will attach to this
product/service offering? If so, how can I use this to assist me in
strengthening my value proposition?
4) Are there unique service benefits I can incorporate into this value
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proposition that will assist me in supporting potential and existing

customers?
5) In analyzing the above-mentioned questions, can I create a strong
enough value proposition to enable me to successfully compete
against other competitors in the market segment in which I choose to
compete?

Understanding Your Cost Base

- A key component of managing any business is in understanding the expenses that must
be considered when setting the price of a product or service offering.
- Asset-based expenditures are those expenditures incurred in commencing a business
operation or expanding its capacity. Ex. Equipment
- Operating expenditures are expenses incurred as a result of the normal business
operations. Ex. Salaries/wages.
- Managers and business owners need to understand the costs they will incur in setting up,
expanding, and operating their businesses.

The Business Decision-Making Landscape

- At its core base, developing and managing a business requires its owners/managers to:
1) create a vision of the opportunity in the marketplace
2) confirm that the market size of customers is large enough that, once
commercialized, the opportunity can enable the organization to make a profit
and sustain this profitability for the anticipated planning cycle and beyond
3) confirm that a position within the market is feasible, which will enable the
company to compete in a manner that is superior to its direct competition
4) confirm that the market situation will stay constant long enough for the
business plan to be developed and executed
5) confirm that the business has the resource base and the capability to execute
the strategy • execute the strategy in an efficient and effective manner,
achieving the objectives set forth within the business plan created
- As this process demonstrates, being in business is really a question of developing strategy
and executing tactics.
- Strategy focuses on the vision of the firm and the opportunity it believes exists in the
marketplace. It also checks that the life expectancy of the product or service is long
enough to ensure that the initial investment can be recovered and that the firm can make a
profit. Strategy development also assesses whether the firm has the competencies and
resources to compete in this targeted market.
- Tactics are the immediate-term actions that a firm executes to meet the short-term
objectives set forth in the current planning cycle.
- Tactics can be thought of as the action items a firm undertakes to ensure that it is
successful in achieving its strategic objectives. Tactics could involve the expenditure of
money for new equipment, the hiring of new staff with specialized skills, or the
manufacturing processes undertaken to develop a product or service.
- To successfully grow a company, the management team has to be successful in both
planning strategy and executing tactic
- Strategically, managers need to understand where the market is going and how their
products and services will fit into the market and meet customer needs.
- Tactically, they need to ensure that the right product reaches the right customer at the
right time, and at the right place for the right price.
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Management Reflection- Focus On Business

- Business is not about producing and distributing goods and services. It is about delivering
value to customers in a manner that meets their wants and desires.
- As managers, in conducting business we need to avoid the temptation to become pre-
dominantly focused on short-term results. Managers need to make decisions in
recognition of both immediate needs and longer-term requirements in order to protect and
grow the general health of the organization.
- Business is static, not dynamic- it is changing all the time.
- Managers must continually assess and reassess market conditions and their own
business’s position in the markets they serve.

CHAPTER 4

Starting A Small Business

- The 3 major forms of business ownerships are :

1) Sole proprietorship: a business that is owned and operated by one person without
forming a corporation. The business and the owner are a single entity. 24% of businesses in
Canada are sole proprietorships
2) Partnership: A legal form of business with two or more parties.
3) Corporation: A legal entity with the authority to act and have liability
separate from its owners.

-Companies don’t necessarily have to stay in the form they start off in, they can switch from the
different forms of business ownerships.
- Liability is often just another word for debt. Liability for a business includes the responsibility
to pay all normal debts and to pay:
1. Because of a court order
2. Because of a law
3. For performance under a contract
4. For damages to a person or property

Sole Proprietorships

Advantages:

- Ease of starting and ending the business: You can start or stop the business whenever you
want. You may have to get a permit or a license but that it easy.
- Being your own boss
- Pride of ownership: They will be proud of their work
- Retention of company profit: You do not have to share your profits
- No Special taxes: All profits of a sole proprietorship are taxed as the personal income of
the owner, and the owner pays the normal personal income tax on that money. Another
tax advantage for sole proprietors is that they can claim any business losses against other
earned income. These losses would decrease the personal taxes they would need to pay.
- Less regulation: They are less regulated than corporations.

Disadvantages:

- Unlimited Liability: the risk of personal loss. If you are unable to pay debts or losses of
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the business, you must pay them from your personal funds
- Limited financial resources: Funds are limited to what you can invest into the business.
- Management difficulties: All businesses need management; that is, someone must keep
inventory records, accounting records, tax records, and so forth. Many people who are
skilled at selling things or providing a service are not so skilled at keeping records. Sole
proprietors often find it difficult to attract good, qualified employees to help run the
business because they cannot compete with the salary and benefits offered by larger
companies
- Overwhelming time commitment: The owner must spend long hours working
- Few Fringe Benefits: If you are your own boss, you lose the fringe benefits that often
come from working for others.
- Limited growth: Expansion is often slow, since creativity, and funding depends on the
owner
- Limited lifespan: if the owner dies, the business stops
- Possibly pay higher taxes: If the business’s income exceeds $400,000, it will usually be
paying higher taxes than if it was incorporated. Tax rates are more advantageous if the
business is incorporated.

Partnership:

- There are two types of Partnerships:

1) General Partnership: A partnership in which all owners share in operating the
business and in assuming liability for the business’s debts
2) Limited Partnership: A partnership with one or more general partners and
one or more limited partners
- General Partner: An owner (partner) who has unlimited liability and is active in
managing the firm
- Limited Partner: An owner who invests money in the business but does not have any
management responsibility or liability for losses beyond the investment.
- For a partnership to exist, there must be at least one general partner.
- Limited Liability: the responsibility of a business’s owners for losses only up to the
amount they invest; limited partners and shareholders have limited liability.

Advantages:

- More financial resources: A limited partnership is specially designed to raise money

(capital).
- Shared management and pooled/complementary skills and knowledge: Partners give each
other free time from the business and provide different skills and perspectives.
- Longer survival: Being watched by a partner can help a person become more disciplined
- Shared risk: A partnership shares the risk amongst the owners
- No special taxes: all profits of partnerships are taxed as the personal income of the
owners, and the owners pay the normal income tax on that money. Similarly, any
business losses can be used to decrease earned income from other sources.
- Less regulations

Disadvantages:

- Unlimited liability: Each general partner is liable for the debts of the firm, no matter who
was responsible for causing those debts. You are liable for your partners’ mistakes as
well as your own.
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- Division of profits
- Disagreements amongst partners: all the terms of the partnership should be spelled out in
writing to protect all parties and to minimize misunderstandings
- Difficult to terminate: Distribution of resources is stated in the Partnership agreement
- Possibly pay higher taxes

One common fear of owning your own business or having a partner is the fear of losing
everything you own if the business loses a lot of money or someone sues the business.

Corporations

- Although many corporations are big, incorporating may be beneficial for small
businesses as well
- The corporation’s owners (called stock- holders/shareholders, as they hold stock/shares
of ownership in the company) are not liable for the debts or any other problems of the
corporation beyond the money they invest.
- It also enables people to share in the ownership (and profits) of a business without
working there or having other commitments to it.
- Corporations are divided into two categories:
1) Public corporations: corporation that has the right to issue shares to
the public, so its shares may be listen on a stock exchange. This offers
the possibility of raising large amounts of capital, regardless of the
size of the company. That is, public corporations can be small and
large companies.
2) Private Corporation: corporation that is not allowed to issue stock to
the public, so it shares are not listed on stock exchanged; it is limited
to 50 or fewer shareholders. Private Corporations have tax benefits on
public corporations. They have lower tax rates. Also, he/she can issue
stock to a daughter, a song, or a spouse, making them co-owners of
the company. This is not available for sole proprietors. This allows
family members to inherit the business.

- There is a formal procedure for forming a corporation that involves applying to the
appropriate federal or provincial agency. It is recommended that the company owners
seek the services of accountants and lawyers, causing it to be more complex and
expensive.

Advantages:

- Limited Liability:
- More money for investment: To raise money, a corporation can sell ownership (stock) to
anyone who is interested. Corporations can also borrow money from individual investors
by issuing bonds. Corporations may also find it easier to obtain loans from financial
institutions, since lenders find it easier to place a value on the company when they can
review how the shares are trading.
- Size: they can use the large amounts of investments to expand their business, and have
up-to-date technologies.
- Perpetual Life: The death of one or more owner does not terminate the corporation
- Ease of Ownership change: Can easily sell stock to someone else, changing the
ownership
- Ease of drawing talented employees: corporations can attract skilled employees by
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offering benefits such as a pension plan, dental plan, and stock options
- Separation of ownership and management: Corporations are able to raise money from
many different investors without getting them involved in management

The owners/stockholders elect a board of directors. The directors hire the officers of the
corporation and oversee major policy issues. The owners/ stockholders thus have some say in
who runs the corporation, but they have no control over the daily operations.

Disadvantages:

- Extensive Paperwork: corporations must process many forms

- Double taxation: Corporate income is taxed twice. First the corporation pays tax on
income before it can distribute any to stockholders. Then the stockholders pay tax on the
income (dividends) they receive from the corporation.
- Two Tax Returns: If an individual incorporates, he or she must file both a corporate tax
return and an individual tax return
- Size: (Advantages and a Disadvantage) Large corporations sometimes become too
inflexible and too tied down in red tape to respond quickly to market changes.
- Difficulty to Terminate: Legal procedures are costly and more complex than for
unincorporated companies.
- Possible conflict with stockholders and the BOD
- Initial cost: expensive to start.

Other Types Of Corporations:

Professional Corporations:

- A professional corporation is a Canadian-controlled private corporation engaged in

providing professional services.
- The member must be part of a profession that is governed by a professional body that
allows its members to practice through a corporation, as opposed to a sole proprietorship
or partnership.
- Each province has different laws and rules as to which professions have these governing
bodies.
- Normally, individuals who incorporate do not issue shares to those outside of their
business or family; therefore, they do not share all of the same advantages and
disadvantages of large public corporations (such as more money for investment and size).
- Limited liability is a benefit, depending on your professional service.
- The major benefit of professional corporations is tax advantages: professional
corporations can benefit from the Small Business Deduction, income splitting with
family members, and the capital gains exemption for qualifying small business
corporation shares (if shares are later sold).

Non-Resident Corporations:

- A non-resident corporation conducts business in Canada but has its head office outside
Canada

Non-Profit Corporations:

- A non-profit corporation is formed for charitable or socially beneficial purposes.

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- It has many features of business corporations, but it pays no income taxes and it does not
issue shares.
- It does not have owners or stockholders

Crown Corporations:

- Crown corporations are companies that only the federal or a provincial government can
set up.

Corporate Governance:

- Corporate Governance is the process and policies that determine how an organization
interacts with its stakeholder, both internal and external
- There are rules that outline how the organization is to be managed
- Corporate Governance is necessary due to the evolution of public ownership.
- BOD represents the interest of the stockholders.
- BOD is often determined by their business experience and level of expertise.
- BOD may be held personally liable for misconduct of the corporation.
- Many BOD also serve as the officers of the organization

Business Regulations

- Companies that wish to operate in Canada must follow federal and provincial business
laws and regulations

Registration

- Companies wanting to incorporate must fill out articles of incorporation and file these
with the appropriate provincial/territorial or federal authority.
- Articles of incorporation are a legal authorization from the federal or provincial/territorial
government for a company to use the corporate format.
- The main advantage of being a federally incorporated company is that incorporation
gives the company name added protection and guarantees its usage across Canada.

Reporting and Information

- All public corporations must file annual reports containing basic data about themselves.
- An annual report should include the name of the officers, how many shares have been
issued, and the head office location.
- Ever corporation must also file an annual tax return containing financial statements and
pay the necessary taxes during the year.

Corporate Expansion

Mergers and Acquisitions:

- A merger is the result of two firms forming one company.

- An acquisition is one company’s purchase of the property and obligations of another
company.
- There are three major types of corporate mergers:
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1) A vertical merger is the joining of two firms involved in different stages of

related businesses. This can lead to easier supply of input, as well as better
quality.
2) A horizontal merger joins two firms in the same industry and allows them to
diversify or expand their products. This expands the products of the business.
3) A conglomerate merger unites firms in completely unrelated industries. The
primary purpose of a conglomerate merger is to diversify business operations
and investments.
- Mergers allow regional players to work together and compete more efficiently.
- A Leverage Buyout (LBO) is an attempt by employees, management, or a group of
investors to purchase an organization primarily through borrowing. The funds are used to
buyout the stockholders in the company. The employees, managers and investors now
become the owners of the firm

Franchising

- A franchise agreement is an arrangement whereby someone with a good idea for a

business (the franchisor) sells the rights to use the business name and to sell a good or
service (the franchise) to others (the franchisee) in a given territory.
- Both franchisors and franchisees have a stake in the success of the franchise.
- A franchise can be formed as a sole proprietorship, partnership, or corporation.
- Franchising is a method of distributing a good or service, or both, to achieve a maximum
market impact with a minimum investment.
- It is not a separate form of business ownership and it does not replace a form of business.
- Canada has the second largest franchise industry in the world, led only by the United
States.

Advantages:

- Management and marketing assistance: Franchisee is selling an established product. The

franchisor provides assistance in all phases of the operation. Franchisors provide
intensive management training, since they want the franchisees to succeed. Some
franchisors are helping their franchisees succeed by helping with local marketing efforts
rather than having franchisees depend solely on national advertising.
- Personal Ownership: you are still your own boss
- Nationally recognized name: you get instant recognition and support from a product
group with established customers around the world.
- Financial Advice and Assistance: Franchisees get valuable assistance and periodic advice
from people with expertise in these areas. In fact, some franchisors will even provide
financing to potential franchisees they believe will be valuable partners of the franchise
system.
- Low Failure rate

Disadvantages:

- Large start-up costs

- Shared profit: The franchisor often demands either a large share of the profits in addition
to the start-up fees or a percentage commission based on sales rather than profit. This
share demanded by the franchisor is generally referred to as a royalty
- Management regulations
- Coattail effects: he actions of other franchisees clearly have an impact on your future
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growth and level of profitability.

- Restrictions on selling: there are restrictions of reselling their franchises
- Fraudulent Franchisors: Most franchisors are honest, but there has been an increase in
complaints about franchisors that deliver little or nothing of what they promised.

Home Based Franchises:

- Home-based businesses offer many obvious advantages, including relief from the stress
of commuting, extra time for family activities, and low overhead expenses.
- But one of the disadvantages of owning a business based at home is the feeling of
isolation.

E-Commerce In Franchising:

- Internet users are able to obtain franchises to open online retail stores stocked with
merchandise made in all parts of the world
- Some franchisees with existing brick-and-mortar stores are expanding their businesses
online.
- Franchisees that started with a limited territory are now branching out globally.
- Other franchisors prohibit franchisee-sponsored Web sites. Conflicts between franchisors
and franchisees can erupt if the franchisor then creates its own Web site. The franchisees
may be concerned that the site will pull sales from their brick-and-mortar locations.
Sometimes the franchisors send “reverse royalties” to outlet owners who feel that their
sales were hurt by the franchisor’s Internet sales, but that doesn’t always bring about
peace.
- Before buying a franchise, you would be wise to read the small print regarding online
sales.

Franchising In International Markets

- What makes franchising successful in international markets is what makes it successful

domestically: convenience and a predictable level of service.

Co-operatives

- A co-operative is an organization owned by members and customers who pay an annual

membership fee and share in any profits (if it is a profit-making organization).
- Often the members work in the organization for a certain number of hours per month as
part of their duties.
- Co-operatives in Canada represent a large and diverse heritage of Canadians working
together to build better communities based upon co-operative principles.
- Some co-ops are listed in Canada’s top 500 companies and several financial co-
operatives have been rated the best places to work in Canada.
- Different Features:
1) A different purpose: The primary purpose of cooperatives is to meet the
common needs of their members.
2) A different control structure: They use the one member/one vote system,
allowing them to serve the common need, rather than the individual need
3) A different allocation of profit: They share profits amongst their members,
on the basis of how much they use the co-op. Profits tend to be invested in
improving services for its members.
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- Because co-ops distribute their profits to members as a reduction in

- members’ costs, these profits are not subject to income tax.
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Chapter 5

Canada and Its Economic System

- As a current member of the G7/8, Canada possesses one of the most fully developed
economic systems in the world.
- Our economy has moved from being primarily agricultural to a diversified system with
products and services sought by consumers and businesses around the world.
- Productivity gains, strong business investment, technological innovation, moderate wage
increases, and a favourable currency exchange rate are all key factors that are deemed
critical to ensuring our economy remains strong and competitive now and in the future.

Key Economic Influences

- The contributing factors for economic development that are in place within a particular
economy and economic model that governs overall activity enables some economies to
prosper while others struggle

Contributing Factors to Economic Development

- A core requirement to the stability and growth of any economic system lies in its ability
to support and promote both the current and future economic activity taking place.
- This encompasses both the ability to provide a stable environment for economic growth
and to ensure that the required business and economic management systems are in place
to support an organized approach to economic development.
- Contributing Factors to economic development:
1) Political stability
2) Manageable levels of national debt
3) Established factors of production
4) National monetary policy and banking system
5) Sufficient levels of investment
6) Low inflation
7) Absence of corruption
8) Comparative advantage: the ability of a country to produce or supply goods
or services at a lower cost than other countries or to possess resources or
unique services that are unavailable elsewhere
9) Effective legal system
- Foreign Direct Investment (FDI) occurs when a company or individual from one country
makes an investment into a business within another country. This investment can reflect
the physical ownership of productive assets or the purchase of a significant interest in the
operations of a business.

The Underlying Economic Model

- In order for an economic system to develop and grow and to encourage and foster a
climate that promotes and rewards economic risk, a balanced relationship also needs to be
established among three fundamental market composition principles:
1. The law of supply and demand
2. Allowance for private ownership, entrepreneurship, and wealth creation
3. Extent of government involvement in influencing economic activity and
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direction

THE LAW OF SUPPLY AND DEMAND

- The law of supply and demand refers to the ability of the market, independent of external
influences, to determine the price for which a product or service will be bought and sold.
- Demand (elastic or inelastic) reflects the number of purchasers who are willing to pay for
a product or service at various price points.
- Supply reflects how much of a product or service producers are willing to provide the
market at various price points.
- Suppliers need to think about the cost of production versus the revenue that will be
received from selling their product, and the change in profit that will be realized at
different points on the schedule.
- According to the law of supply and demand, if the prices are too high, there will be a
surplus, if the prices are too low, there will be a shortage, but eventually the prices will
fall back to the equilibrium.
- In some situations, price may be influenced or controlled by external mechanisms such as
duties, tariffs, subsidies, or regulatory practices.
- In other economic settings, the law of supply and demand is provided with a much freer
rein and, as such, plays a much bigger role in the actual price being charged for a
particular product or service.

ALLOWANCE FOR PRIVATE OWNERSHIP, ENTREPRENEURSHIP AND WEALTH

CREATION

- This principle refers to the openness of the market to support, encourage, and promote the
concepts of private enterprise, personal ownership, entrepreneurship, and wealth creation.
- To a varying degree, economies around the world allow individuals and corporations
these rights.

GOVERNMENT INVOLVEMENT IN INFLUENCING ECONOMIC ACTIVITY AND

DIRECTION

- Government involvement in the economy relates to the varying roles government can
play within ongoing day-to-day economic activities.
- Government can act as a customer via the purchasing of goods and services; as a
regulator, restricting access or defining competitive protocols within particular economic
sectors; as a manager via powers granted to Crown organizations, such as the Bank of
Canada; as a taxation agent; as an economic stimulation agent via grant and subsidy
programs, infrastructure development programs, and specific industry or company bailout
programs; and as a competitor (providing services in direct competition for private-sector
businesses), to name a few.

- These three market composition principles will come together to provide the overall
framework for economic activity within a given nation or economy.
- it is best to view the relationship between these three market composition principles as
being on a continuum. At one end of the continuum is a fully open system, which is
governed largely by the law of supply and demand, provides full and open access to the
principles of private ownership, entrepreneurship and wealth creation, and possesses an
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absence of regulation on the part of a government. Open systems are also interpreted as
being systems where foreign trade and movements in labour and capital are largely
unrestricted.
- At the opposite end of the continuum is an economic system that is considered to be
planned or controlled, in that the fundamentals of the law of supply and demand, private
ownership, entrepreneurship, and wealth creation are largely restricted or absent, and the
government fully controls the economic direction and activity on behalf of all (state
authorities making decisions relating to domestic prices, output, and production).
- Controlled systems are also defined as economies that operate without or experience
minimal external trade.
- Within today’s global economy no system can be considered completely open
- Given the recent financial services and economic crisis, we have seen a significant
economic management role being undertaken by this government, which has moved this
economy in the direction of a more mixed economic system.
- The openness or restrictiveness of a system can change over time as regulatory policies,
development strategies, and external influences will impact overall economic
governance.

Canada: A Mixed Economic System

- Canada, like most fully developed nations, is considered to be a mixed economic system
- Our government will become more or less engaged when it believes that, in doing so, it
would be in the best interest of our nation in order to protect and regulate industries or
guide economic initiatives.

The Economy In Simple Terms

- Productivity and resulting economic activity can be predicted on the basis of 4

fundamental factors:
1) Expenditures: the purchases you make in support of you day-to-day
economic activity that are need to be value in meeting sustenance needs and
in improving your overall quality of life.
2) Savings: dollars you set aside today that will support economic activity and
wealth creation for the future
3) Capital asset investments: investments you are making today to further
expand your capacity to conduct and expand your productivity and overall
economic capacity.
4) Credit: the borrowing of dollars to support expenditures or investments being
made.
- Economic Activity= Expenditures+Savings+Investments+Credit
- The economy as a whole operates on the same principles.
- Economies grow as a result of the activities of everyone.
- Economic growth relies on the fundamental factors being on an equilibrium base.

The Economic Growth Cycle

- The total value of a nation’s economy is measured by its GDP (total market value of the
goods and services a nation produces domestically over a period of time)
- Factors that contribute to GDP:
1) goods and services produced and purchased domestically for consumption
2) business investments within the economy
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3) goods produced for export purposes

4) government spending
- Economists track the movement of GDP over a period of time to determine whether an
economy is growing or contracting.
- The broad base of economic activity enables our economy to with- stand economic
downturns in one sector, thereby preventing it from having a detrimental influence on
economic activity as a whole.
- The movement of economic activity:
1) Growth in the economy via its GDP driver(s) (mainly consumer
spending) results in an increase in corporate revenue and profits and
government tax revenue (increased tax revenue, GST revenue,
provincial tax revenue, etc.).
2) As a result of this increase in profits and tax revenue, both business
and government will possess increased capacity to invest in new
infrastructure and new product/service offerings for consumers. These
investments expand the economic infrastructure to meet the growing
needs of the economy and the people within it, and add further
stimulation to economic activity.
3) Increased business activity requires more employees, resulting in an
expansion of employment opportunities.
4) With an increase in the need for workers, employers are forced to pay
higher wages to attract and retain employees. These higher wages
result in additional dollars for workers (consumers) to spend and,
therefore, contribute to economic growth (via further spending and/or
expanded credit capabilities). As long as this real wage growth
outpaces inflationary pressures, true economic growth will occur.
With prolonged periods of economic growth, the cycle continues to
repeat itself and overall economic activity continues to expand.

Managing the Movement in the Economy

- growth in overall economic activity is desired, however, this growth needs to be managed
in a way that stimulates investment yet maintains control of inflation (rise in the level of
prices of goods and services within an economy over a period of time) and other
inefficient economic influencers.

Trends Impacting The Canadian Market

- the Canadian economic market is a complex entity that continues to change and evolve as
internal and external influences impact both its direction and its composition.

INFLATION:

-Inflation robs an economy of true growth and psychologically negatively impacts the confidence
levels of consumers and business operators alike.

GEOGRAPHIC CLUSTERING

- Geographic clustering occurs when regional economies develop into what are considered
distinct from one another and separated by significant geographic space where
interdependency is minimized.
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- In essence, a variety of distinct regional economic platforms occur.

- Although this occurs frequently at the local level, enough interdependency exists at the
regional and national levels to mitigate any negative consequences on the economy.
- The danger occurs when such distinctness occurs at the broader macro level, resulting in
the inability of governments to effectively implement national-based economic
management actions to effectively control economic expansion or contraction via
monetary policy or inflation control mechanisms.

CURRENCY EXCHANGE RATE IMPACT

- In Canada, the strength of the Canadian dollar has caused the price of goods and services
being imported to reduce
- The revenue received from exports has increased
- Trips to the US has become less expensive
- As the price of Canadian goods ands services has risen, the cost of visiting Canada has
become more expensive.
- Our export manufactures will need to think of other ways of to gain competitive
advantage against the competitors.

BRANCH MARKET IMPACT

- Purchasing Power Parity is a measure that takes into account the relative cost of living
and the inflation rates of each country, and adjusts the total value of economic activity
accordingly.
- Canada has a high PPP, but the over all size of the economy is small when compared to
other countries.
- Hostile takeover : an attempt by a company to take over another company whose
management and BOD are unwilling to agree to the merger of takeover

SUSTAINABILITY AND GREEN INITIATIVES

- Sustainability and green initiatives will have an increasing emphasis across the business
spectrum.
- Companies will seek to achieve both market positioning advantages and cost advantages
through the execution of green-based strategies as part of their overall business plan.
- This will include an increased emphasis on green products, more environmentally
friendly packaging, reduced carbon emissions, and greater sensitivity to the use of finite
resources in the development, production, and distribution of goods and services to the
global community at large.

AGING WORK FORCE, IMMIGRATION AND MULTI-CULTURALISM

- As baby boomers slide into retirement, analysts are becoming increasingly concerned
about intellectual capital shortages in fields such as information technology, health care,
education, and skilled trades in a number of market sectors, including the petroleum
sector as noted above.
- With an aging population and one of the lowest birth rates of any fully developed
country, Canada’s strategy for replacing retiring workers and for continuing to grow our
economic base is closely tied to immigration
- Immigration brings both challenges and opportunities.
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LONG TERM COMPETITIVENESS

- The challenge to improve productivity levels, the increased cost base associated with our
strong currency, and the ability of businesses within developing countries to operate with
lower overall costs (largely due to savings in the labour sector) mean that Canadian
manufacturers and the economy as a whole will need a shift in emphasis to remain
competitive.
- Education, banking and financial services, and sophisticated operational process
development are areas where we must continue to excel in order to ensure our economic
platform and our quality of life are protected and enhanced.

SMALL BUSINESS EMPHASIS

- Small businesses make up the most significant portion of the fabric of our marketplace.
- Entrepreneurship continues to drive small business creation in Canada and this trend is
not anticipated to subside going forward.
- Domestic ethnic market development, global niche market opportunities and specialty
goods and services offerings are just a few examples of where continuous small business
growth will be driven.

GLOBALIZATION

- Globalization refers to the growing interconnectivity of the world and the heightened
interdependence we are seeing among its various economic regions.

Managing in Challenging Times

- It is fundamentally important that we understand what is happening in both our domestic

economy and within those global economies that influence our overall economic activity
and prosperity.
- We must be in tune not only with the general directions that are occurring, but also with
the opportunities and threats that will develop as a result of such increased economic
activity and interdependency
- managers will generally look to monitor a number of key economic indicators that reflect
the general movement in the economy.
- Some of the primary economic indicators that we assess on the basis of movement within
them are:
1) unemployment rate
2) inflation rate
3) Consumer Price Index (CPI)
4) new housing starts
5) manufacturing inventory
6) Consumer Confidence Index
7) Price of crude oil
8) Stock market indexes
9) Currency exchange rates
10) Monthly retail sales
- Information relating to each of these indicators can be picked up via government releases,
media reports, industry trade and analyst reports, and Web-based searches.
- Ongoing monitoring of these indicators enables us to assess whether the economy is
expanding rapidly, beginning to slow, or moving into a potential market contraction or
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recession.
- managers will also assess at the macro level the political, social, technological,
environmental, and legal changes that are occurring, commonly referred to as a PESTEL
analysis
- Politically, the assessment will be looking for trends in government legislation or activity
that may signal a change to the management of the economy and, therefore, the
equilibrium relationship within the mixed economic system.
- Socially, managers will look for trends that may fundamentally change how consumers
want, need, or use products/services, as well as the changing composition of the
marketplace.
- Managers also need to pay attention to changes occurring in the legal sector and its
potential impact on the overall business risk.
- Changes associated with environmental compliance regulations and other environmental
sustainability obligations must also be reviewed and brought into the decision-making
process.
- Managers must constantly assess the speed and direction of technology shifts that could
potentially render current products, services, and operational processes obsolete.
- In evaluating the current market within which a business is competing, managers need to
understand the composition of the competitive model that currently governs the
marketplace and the potential for disruption to this model moving forward.

Understanding Competitive Models

- Under- standing the type of competitive environment a business is facing is fundamental

to creating a strategy for competing and understanding where and how to allocate
resources in support of product/service positioning and overall marketing effort.

Purely Competitive Markets

- Purely competitive markets are markets that are characterized by a number of similar
products or services and where no single competitor has a dominant market leader
position.
- A key fundamental characteristic of this market is the absence of differentiation among
the products or services being offered. T
- These markets generally are characterized as possessing few barriers to new market
entrants.
- Commodity-based markets and agricultural markets offer a number of good examples of
purely competitive markets.
- In this type of market, the product or service is largely viewed as a commodity, with price
being a key component of the overall purchase decision.

MONOLOPLISTIC

- monopolistic markets are markets that possess a number of different suppliers of products
and services but where the nature of the product or service, along with the marketing
effort initiated by businesses within the sector, has enabled true differentiation to set in.
- Products and services are viewed by customers as being some- what different and unique,
resulting in a significant shift in the development and marketing of value propositions.

OLIGOPOLY-BASED MARKETS
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- Oligopoly-based markets are markets that contain a small number of suppliers that
control a large percentage of market share within the market and that compete on the
basis of products or services that have achieved success in distinguishing themselves
from their competitors.
- The emergence of oligopolies often is the result of the significant capital investment
required to enter an industry and the significant economies of scale and scope necessary
to be competitive.
- oligopolies will generally have greater control over the price being charged for a product
or service due to the limited competition within this marketplace.

MONOLOPY BASED MARKETS

- Monopoly-based markets are markets that are served by a single product/service supplier.
- in monopoly-based markets, many of which are government regulated, the belief is that a
single entity can provide the product or service more efficiently and at a better price point
than an open-market concept could.
- the extent of capital investment needed, as well as the infrastructure requirements
necessary to maintain the flow of goods or services, makes the monopoly competition
model the best solution.

- A key fundamental in competing in the marketplace is to know which type of market

environment you are operating in.

- Recognizing the current status of the competitive market, managers must also recognize
the market configuration and composition are not static. Markets change and evolve as
new competitors and innovations come into play.

Sensing Market Change

- One of the most-often-used business tools for assessing market change is Porter’s Five
Forces
- It suggests that managers and business owners can keep their finger on the pulse of the
industry within which they operate by assessing changes within five key areas:
1) Rivalry amongst existing competitors
2) Threat of New Entrants
3) Threat of Substitute products/services
4) Bargaining power of Buyers
5) Bargaining power of Suppliers.
- We must constantly assess our industry and its markets for potential disruptive changes
that will render our products obsolete or negatively impact our customer base.
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Chapter 6

Ethics In Management

- Ponzi Scheme is a type of investment fraud that involves the payment of purported
returns to existing investors from funds contributed by new investors

What Is Ethics?

- Unethical decisions are not restricted to the private sector, both government and the not-
for-profit sector have also has such challenges.
- Canada’s federal government, and a number of provincial governments have recently
faces questions regarding their ethical behavior

Ethics and the Individual

- Ethics: a reflection of the moral principles or beliefs about what an individual views as
being right or wrong
- These beliefs are built in part around the norms or standards of conduct society views as
acceptable behavioural practices.
- ethics is so personal, herein lies the problem, or challenge, with respect to assessing the
ethical boundaries within which an individual will operate. Individual motivations,
cultural and environmental upbringing, personal pressures, and lack of information or
ignorance will all influence an individual’s ethical behaviour.
- For some, ethics is based solely on legality: if it is legal, it is therefore ethical.
- For others, it is about fairness: if the situation I find myself in is perceived to be unfair,
then I am entitled to any course of action to right the wrong.
- Misinterpretation of what society values also plays into questions relating to ethics.
- Ethics can be thought of as an individual hand that guides us as we walk
- Mangers are challenged with a multitude of decisions, many which carry ethical
overtones to some degrees. The same holds true for employees.
- One’s individual interpretation of what is acceptable and no acceptable can be influences
by your own personal upbringing as well as societal and other external influences,
causing everyone’s ideas of ethics to be different.
- The triple-yes rule: In making decisions, we need to think in terms not of what is in our
personal best interests, but what is in the best interests of the stakeholders and the public
at large. (can do so by determining where the boundary lies)
- They must answer yes to the following questions:
1) Does the decision that I am making fall within the accepted values or
standards that typically apply to all organizational environments?
2) Would I be willing to have this decision communicated to all of my
organization’s stakeholders and have it reported on the front page of the
newspaper or serve as the lead story on a news channel?
3) Would the people in my life with whom I have a significant personal
relationship, as well as managers of other organizations, approve of and
support my decision.
- The ethical decision making process can be used in combination with the triple-yes rule.
- This allows managers to think through the consequences of a decision he/she is about to
make
- This process has two main elements:
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1) ensuring you have initiated the proper depth of assessment to fully

understand the ethical dilemmas and/or consequences that may permeate the
decision of exist below its surface.
2) Testing your interpretation of you intended decision with a mentor or key
adviser to ensure you are correctly interpreting the situation and that your
decision-making frame of reference is complete.
- The most important skill you can bring to the work place is your integrity (honesty,
reliability, ethics, moral judgment)

Ethics and Culture

- Culture development is not just about motivation and employee performance, a critical
component of an organization’s culture is the defining of the boundaries or acceptable
behaviour for its management team and employees.
- For many organizations, the responsibility for developing policies relating to values,
ethics, and financial integrity lies with the organization’s BOD
- Management execute the policies, but the BOD or owners of the organization need to
ensure the parameters that define ethical behaviour are in place, and fully communicated
to all employees.
- Just as companies are vulnerable to shifts in market conditions, changes in the intensity
of competitive rivalry, disruptive technologies, and changing customers, so, too, are they
vulnerable to the serious consequences and brand equity erosion that accompanies
unethical behaviour within their management and employee ranks.
- In forming a culture of ethical behaviour and financial integrity, boards of directors are,
in essence, trying to establish the accepted zone of business actions and activities for an
organization. (this keeps an organization’s decision-making process and its activities
within what is considered to be the “green zone” of accepted business principles around
which a company is to operate.)
- The green zone acts as a barrier to keep managers and individuals from straying into the
zone of ethical and decision- making uncertainty (the grey zone), or the zone of clearly
defined unethical behaviour (the red zone).
- To truly create a culture of ethical behaviour and financial decision integrity, the board of
directors (or owner-representative body) must be active in the ongoing monitoring of the
organization and take a leadership role in the tightening of such processes when and
where it is required.
- For boards to effectively create a culture of ethical behaviour and financial integrity, they
must commit to the following specific actions:
1) The board must clearly define and establish boundaries of acceptable
behaviour and financial integrity, and create performance standards to
evaluate adherence to these parameters.
2) These boundaries must be clearly understood and communicated to
all employees in the form of a policy or code of conduct. This code of
conduct is not limited to financial integrity, but should clearly identify
boundaries associated with ethical behaviour, both internal and
external, and the consequences for failure to adhere to such a policy
or code of conduct. A key requirement at this level is that senior
management fully buy into the development process and the
integration of the code of conduct into the organization’s policies,
protocols, and overall culture.
3) The board of directors must appoint a representative (individual or
committee), at the board level, whose responsibility is to audit
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managerial and employee performance and action in critical areas of

this policy or code of conduct. This representative or committee
would also be a key participant in reviewing compensation packages
and other personnel-related policies to ensure these are not designed
in a way which would encourage unethical behaviour.
4) The board of directors must create and support a mechanism for the
reporting of ethical concerns within the organization (called
whistleblowing), with such a process designed in a way that ensures
employees who utilize such a process are not penalized or ostracized.
5) The board of directors or its representative must interact with senior
management and external agencies monitoring the organization’s
activities in order to discuss issues that could arise with respect to
management or employees, and represent the best interests of the
organization and its shareholders with respect to questions of ethical
behaviour or financial integrity.
- the board of directors must see itself as the creator and sentinel of the organization’s
conscience. To ensure this occurs, boards must take a lead role in the development of
management compensation policies, the shaping of an organization’s personnel policy,
the review of senior management’s performance, and the communication of
organizational activities to stakeholders.
- By actively developing an ethical behaviour and financial integrity policy and process,
the board of directors and its members can define what is acceptable behaviour for the
organization’s employees and develop the necessary parameters needed to keep
behaviour clearly in the green zone.
- The board of directors and the organization’s senior management team should also set the
expectation and look for full compliance to the organization’s code of conduct by supply
chain and channel distribution partners.

Regulating Ethics

- Governments and agencies worldwide have created regulations that define how
organizations should comply with financial integrity obligations and ethical decision
making and behaviour
- The G20 has agreed to the development of high-quality global accounting standards, and
initiatives are now underway to make this a reality.

FORESNSIC ACCOUNTING:

- It is the integration of accounting, auditing and investigative skills

- This is important, in order to look beyond the numbers and determine the extent of
damage an organization may have incurred.

What Is CSR?

- Corporate Social Responsibility

- CSR may lead to much debate, since everyone have different meanings of ethics.
- Businesses and societies are interconnected and interdependent
- CSR is the understanding that the purpose of an organization is to create shared values by
strategically integrating into its actions a partnership mentality with society where the
objectives of both parties are met.
- Treating the stakeholder’s interests are key for an organization’s success.
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Why is CSR Becoming Important?

- 3 trends help to explain the increasing importance of CSR:

1) Social responsibility has remained an important issue in the minds or more
than 75% of consumers
2) The ability of leverage CSR initiative as a key differentiator between two
businesses is an important part of an organization’s overall value proposition
3) A growing percentage of consumers are willing to spend the same, or more,
on products or services from organizations that demonstrate the effective
execution of CSR initiatives.
- CSR is interpreted to mean that: companies should be giving back to local communities,
and companies need to self-regulate their actions and be
willing to be held accountable for their decisions
- Not all industries or market sectors exhibit the same level of concern in regards to CSR
- A true key to creating a positive CSR bond with consumers is by demonstrating, through
the products and services being offered, the social benefit of the organization’s offerings.
- companies that do a better job of understanding consumer perceptions and expectations
relating to CSR, and that utilize this knowledge in the delivery and support of their
product/service value propositions, ultimately will be more successful in winning the
public’s trust.

The Interdependence of CSR and Corporate Strategy

- businesses must identify where they can have a positive effect on society and actively
incorporate these initiatives into their overall strategy
- CSR PYRAMID:
Strategic Partnering
Operational Initiatives
Personal Projects Philanthropy
- The bottom of the pyramid, provides a positive contribution to society, however, in many
cases they are the result of decision that do not significantly influence forward-looking
corporate strategy but rather seek to enhance the company’s image or brand in the
marketplace.
- Companies must start to view operational systems and tactics with social responsibility
outcomes in mind. This forms the middle of the pyramid. They seek to enhance
efficiencies while maintaining strong CRS
- The top level, strategic partnering, is identified by two shifts:
1) The organization’s decision-making process evolves from one that responds
to social issues identified as being pertinent to the organization, to a process
that treats corporate social responsibility as a core root of the organization’s
strategic planning process.
2) The organization recognizes that certain social issues impact the key drivers
of its competitiveness and, therefore, seeks to actively develop the necessary
social partnerships in order to leverage such competitiveness in a way that
positively impacts the people, communities, and environment around which
it conducts its business.
- This means, businesses must be providing full transparency of its business practices and
the risks associated with the products/services it offers, as well as creating socially and
environmentally responsible products.
- These types of decision-making and cultural transaction require leadership from the top.
- Four Quadrants of Managerial Responsibility:
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1) Market Assessment and Strategy Development

2) Business System Design and Development
3) Attracting, Retaining and managing talent
4) Financial Resource Management
- Organizations that are able to climb to the top of the pyramid and develop the necessary
social partnerships in a way that positively impacts the people, communities, and
environment around which they conduct their business are those that are able to fuse and
synthesize their organization’s values and financial aspirations into such a partnership
- In reaching these levels, organizations and their management teams recognize that the
long-term health of society is fundamental to the long-term health of the organization; the
two are interconnected versus being separate and distinct.

The Challenge Behind CSR Implementation

- For many companies, transitioning to the top of the CSR pyramid would require a
significant change not only in operating procedures and processes, but also in the entire
culture of the organization

A Note Pertaining to Not-For-Profit Organizations

- For not-for-profit and charities, the goodwill associated with the work they do and the
integrity with which they conduct themselves are fundamental to their existence.
- Not-for-profits are heavily dependent upon donations from other to keep their operations
rolling
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Chapter 7

The Concept of Business Strategy

The long-term success of an organization and its ability to evolve and grow is predicated on two
fundamental principles:

1. The ability to define and create a strategic direction and market position for the
organization (strategic plan), and
2. The ability to execute the core tactical initiatives within the plan in a manner that ensures
the organization’s success.

Strategy Made Simple

- business strategy is all about understanding what opportunities exist in the marketplace and
which ones should be pursued. Based on these conclusions, managers then have to decide upon
their path of action in pursuit of capitalizing on the opportunities chosen

Core Elements for assessing a business strategy:

For business managers, the development of a business strategy means making decisions and
determining direction in six key areas

1) Purpose: Purpose refers to the mission of the organization and the vision its
managers or owner(s) have for the business. Mission refers to the
fundamental purpose the business has identified as being its predominant
reason for existence. A vision statement is a forward-thinking statement that
defines what a company wants to become and where it is going.
2) Market. Markets refers to the specific markets or market segments the
business sees itself competing in. Markets should be assessed based on
current and future profitability growth. Markets that have become
unprofitable or marginally profitable and lacks future growth should be
evaluated based on Harvesting Strategy "Harvesting is a strategy that reflects
a reduced commitment to a particular market given its perceived weak future
growth or profitability potential."
3) Products. Products and services refers to a review of the current products and
services offered by a business, as well as potential new products/services that
are to be added to the products portfolio.
4) Resource. Resources refer to the allocation of a business's resources in
support of its strategic decisions. as part of the strategy development process
businesses must make decisions on where to al- locate these limited
resources.
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5) Business system. Business system configuration refers to modifying the

organization's infrastructure and the way it does business to ensure the
success of the plan.
6) Responsibility and accountability. Responsibility and accountability refers to
identifying who within the business will be responsible for each aspect of the
strategic plan. A fundamental underlying element of the success of a business
strategy is to identify the key objectives to be achieved and who will be
responsible for their attainment. TO assist managers in such objectives
strategic plans are built around SMAC (Specific measureable actionable and
controllable) principles or SMART (Specific measureable actionable realistic
and time sensitive) principles.

In conclusion, for businesses a strategic plan is the road map to success. It defines a specific route
the business intends to undertake, provides benchmarks to measure its success along the way, and
identifies where and how the organization will interact with its customers as it seeks to meet its
overall mission and vision.

Strategic Planning Process

- Strategic planning process is a “road map” (organizing framework) for success. The
planning process occurs in the following steps:
1) Revisit our purpose: Who are we and where do we want to go?
2) Undertake an I/E (internal/external) analysis to understand our environment:
Company Analysis, Competitor Analysis, Customer Analysis,
Macroeconomic Analysis
3) Identify Opportunities or Threats
4) Define Our Objectives
5) Strategy Implementation: Develop Our Plan +Execute Our Plan

I/E Analysis:

- The I/E (internal/external) analysis is all about assessing business risk and change in four key
areas. These areas are identified as macroeconomic, industry, competitor, and company
- The external portion focuses on the factors influencing markets today, and what will
influence them in the future. In many cases, its an assessment by management of the
magnitude of change that is occurring within a given market arena and what shift in business
risk has occurred or will occur as a result of such changes.
- Different ways of conducting this analysis:
1) SWOT: Strengths, Weaknesses, Opportunities and Threats. This can be a competitor
SWOT analysis (external), or a Company SWOT analysis (internal). Identifying
anticipated moves by major and up-and-coming competitors is also a key component
of the external analysis. Company SWOT analysis’ allows managers to determine
which markets the organization can successfully compete in and which initiatives
should be avoided due to the resource, competency, and capacity limitation of the
organization.
2) PESTEL (Political, Economical, Societal, Technological, Environmental, Legal)
Analysis enables us to get a sense of the broad market environment and external
influences that couple impact demand for goods/services and change the way we do
business. This is used as an External Analysis, at the macroeconomic level.
3) Porter’s Five Forces: This is at the industry level, and is still an External Analysis
4) Types of Competition: This is still at the industry level. This determines the
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industry’s competitive landscape. It is an External Analysis

5) The 3 C Analysis: An assessment of businesses competencies, capabilities and
capacity with respect to the resources that they possess. This is at the internal level.
- A customer analysis, focuses on trying to identify what shifts have taken place in our
customer base in terms of attitudes, behaviors and needs.
- A key outcome of this analysis is the identification of any significant shifts in customer
expectations and requirements for our products and services in the market we serve.
- An organization’s customer analysis will attempt to identify opportunities to reach new
customers through new market development, new products/service offerings, or potentially as
a result of acquiring a company and its customer base.
- A critical part of this I/E analysis process is to identify opportunities that exist for the
organization, as well as any threats that may be present and that must be appropriately
assessed from a risk perspective.

Competitive Advantage

Competitive advantage identification: Assess our view of our world: Based on what we know,
what are our choices? What is our competitive advantage?

o A key outcome of I/E analysis is identifying the competitive advantages an

organization believes it possesses towards its competitor.
 A competitive advantage is when a company can provide customers with a
product/service that offers more value than the product/service provided by
its competitor. “MORE VALUE in your product” ex. other benefits
 Competitive advantages are either strategic or operational.
 Strategic competitive advantage can be thought of as ‘first mover’
actions in a marketplace; the ability to see how your organization can
change the rules of the marketplace. Innovation.
 Operational competitive advantages are the result of being more
efficient and more effective than competitors. Quality, customer
responsiveness and efficiency are a part of this
 Four areas of competitive advantage are: innovation, Quality,
customer responsiveness and efficiency.

Strategy Development

Strategy development: Choose a direction: Given our capabilities, competencies, competitive

advantages, and resources, which strategic choices should we pursue (where will we play)? What
threats must we respond to?

o Make decisions according to the organization’s strategy plan which will decide what
opportunities to pursue and how resources will be allocated. Strategy plan consists of
three parts:
 The corporate level strategy – what the organization intends to accomplish
and where it plans to complete. ‘big picture’ – the what and where
 Business level strategy – outlines the specific objectives the organization
hopes to achieve for each of its identified business initiatives and/or business
units. – the how
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 Operational plan – is a detailed immediate term set of objectives and

corresponding tactics designed to achieve a specific business initiative.
- At the end of the day, the strategy being recommended should define, for the organization,
where and how it intends to compete in the marketplace, which weapons of competitive
rivalry it will leverage as its products and services battle for market share, and the marketing
and operating plans that will be required to effectively and efficiently execute the plan
- Prior to the implementation (execution) of the strategic plan, managers should review the
plan with the intent of confirming the following:
1. The operational activities within the plan are properly aligned to achieve the
plan’s objectives.
2. The budgets established, and the money to be generated, are realistic when
compared to sales forecasts.
3. The resources needed to successfully execute the plan are available or can be
acquired
4. A series of benchmarks or performance indicators have been established that will
enable the management team to effectively monitor the plan’s progress

Strategy Execution

- Strategy execution: Implement our strategy: How do we develop the strategic thrusts and
tactics to achieve our objectives and successfully execute the plan (how we will win)?
- At the point of executing the strategy, the company results in a degree of ‘directional lock-in’
- The directional lock in is the level of the commitment an organization incurs as a result of the
organization’s strategies. The level of directional lock in directly equates to the level of
riskiness of the plan, as the higher the capital amount and resource-base being committed, the
greater the impact on the organization should the plan not be executed properly and fail to
meet its required objectives.
- In the execution phase, organizations commit their capital resources for needs such as
building plants, retooling existing plants, building new equipment’s, funding research and
development for new products and services, undertaking marketing and advertising
campaigns, funding warehouse and distribution logistics support and hiring staff.
- For any business to be successful in recovering its capital investment and covering the
operating costs associated with delivering products and services to customers, the execution
plans need to be effectively implemented.
- The end result is that the company has to generate enough revenue from the sale of its
products and services to cover its operating costs, meet its financial obligations relating to
debt it has taken on (if applicable), and return the investment back to the company. Only if
this performance level occurs will the organization actually experience true growth.
- A key requirement of the execution phase is for managers to continuously monitor the
success of the implementation of the strategy and to take corrective action quickly in the
event that things are not going well.
- Managers operate and manage processes and materials purchases as well as labor levels, to
ensure tat costs stays in line.

Strategy Challenges in SME Sector

- SME Managers often find themselves acting as the marketing, human resource, operations
and financial managers, all rolled into one.
- When SME managers do get a chance to plan, it is often focused on short-term planning
efforts, generally geared toward current-year initiatives.
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- They also lack access to the expertise and resources needed to undertake a strategy review.
- The need to plan strategically is just as important for a small business as it is for a major
multinational organization.
- SMB owners must assess and anticipate the changes that are occurring within their markets,
the need for their products and new opportunities that could exist.
- Creating a strategy for the business, determining where and how to compete, and laying out a
plan for an upcoming specified period will enable SME owners to make better decisions as to
how to allocate their monetary, staffing, and operational resources.

Strategic Planning In NFP Organizations

- NFP organizations must develop strategies and tactics that produce positive financial results
for the organization. Failure to do so will cause them to be unable to sustain their operations
- NFP leaders have a different mandate in that they are challenged to succeed while balancing
the effectiveness of their economic activities with the social goal or purpose of the
organization.
- Their strategies involve a strong inclusion of needs delivery based on the collective interest
and social goals of a segment of society.
- Their actions are assessed by some organized collective.
- In formulating and implementing strategy in the social economy, managers must ensure that
their actions, in addition to guiding the economic activity of the not-for-profit (NFP),
effectively respond to the following:
1. Mission balance: Maintain the balance between the need to create an effective
economic base for the NFP while ensuring that the social mission and goals of the
NFP are met.
2. Vitality: Enhance the vitality of the organization through maintenance and growth
of its membership or community support base.
 Vitality refers to the ability of the NFP to grow and sustain its membership
base and donor base.

3. Collective entrepreneurship: Maintain an atmosphere of collective

entrepreneurship, which means ensuring that the involvement of the community
where it is located and the population it serves are reflected in the formulation and
implementation of the strategy.
4. Rootedness: Enhance the rootedness of the organization by strengthening
partnerships and not-for-profit networks that are supportive of the mission and
work of the NFP. Rootedness: refers to the extent to which the NFP is interwoven
into the fabric of the community that it serves and is supported by a broad
representation of its organizations, businesses, and citizens.
5. Operational effectiveness: Operate in a manner that demonstrates the products and
services offered by the NFP are priced at levels that ensure their accessibility by
the targeted social audience, and provide mechanisms for support for those who
are in need yet truly unable to pay. Collective Entrepreneurship: ensures that the
involvement of the community where an organization is located and the population
that it serves are reflected in the formulation and implementation of the strategy

Management Reflection- The Need to Plan

- To be successful, the organization needs to visualize this process from the customer’s
perspective.
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- A successful strategy is one that properly assesses the external environment, defines the
changes and opportunities within market segments the organization intends to serve, and
effectively allocates resources and maximizes capabilities in a manner that is supportive of
the products and services it delivers to the marketplace.
- A key outcome of the strategy formulation process should be the identification of the key
competitive advantages the organization possesses and the successful leveraging of these
advantages within its marketing communication and operational delivery processes.
- Managers we need to fully understand the key buying criteria that customers are using in
making purchase decisions, and then determine how our organization can best align our
products and services to meet customer expectations identified via these criteria.
- This process is what will enable us to develop and sustain competitive advantages, and will
help us determine how to most effectively allocate resources in order to drive innovation,
efficiency, quality, and customer responsiveness initiatives.
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Chapter 8

Organization Architecture

- The totality of a firm’s organization including:

1) Formal organization (1. location of decision making in the firm; centralized or
decentralized; 2. classification into subunits; 3. mechanisms to control different
subunits)
2) Control systems (ways to measure the performance of the subunits, and see how
well the managers are running those units),
3) Incentive systems (methods to encourage specific employment behavior),
4) Organizational culture (values and assumptions that are shared amongst people in
the firm)
5) People (employees, strategies to train/hire/motivate employees)
- Each component shapes the other
- Structure
Controls – People - Incentives
Culture
- Consistency in these factors leads to competitive advantage as well as maximizing the
performance, and the architecture must support the strategy and operations of the firm.
- A crucial task for managers is to design an organization architecture that makes sense for the
market in which an enterprise competes and the basic strategic positioning it is trying to
achieve.

Designing Structure: Vertical Differentiation

- Vertical differentiation: locations of decision making responsibilities in the structure
(centralized or decentralized) and number of layers in the hierarchy (tall or flat)
- Horizontal differentiation: formal division of the organization into subunits
- Integrating mechanism: mechanisms for coordinating subunits

Centralized:
- when decisions are made at high level in management
-centralization can facilitate coordination
-can make sure that decisions are consistent with organizational objectives
-can avoid duplication of activities amongst different subunits in an organization
-can give top-level managers the means to bring about needed major organizational changes –
temporary centralization or decision making power is an important step in organizational changes

Decentralization:
- decision making authority is amongst lower level managers or employees
- top managers can be over burdened when decision making is centralized
- motivational research favors decentralization
- permits greater flexibility-more rapid responses to changes
- can result in better decisions- decisions are made by people that have better information
about the problems, since they are close to them
- it can increase control ; Decentralization of a subunit increases responsibility, which
increases accountability, which increases control. An autonomous subunit is a unit that
has all the resources and decision-making power required to run its operation daily. The
more responsibility subunit managers have for decisions that impact subunit
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performance, the fewer excuses they have for poor performance and the greater their
accountability.

Centralized or Decentralized?
- Decision between the two is not absolute
- Frequently it makes sense to centralize some decisions and decentralize other decisions
depending on the type of decisions, as well as the firm’s strategy
- Decisions regarding over all firm strategy, financial objectives, major financial
expenditures and legal issues are centralized at the senior management level
- When the realization of economies of scale is an imp factor, centralization tends to occur.
Purchasing and manufacturing decisions are normally centralized in order to eliminate
duplications and realize scale economies.
- Sales decisions tend to be more decentralized, since economies of sales are less of a
consideration here
- When local adaptation is important, decentralization is typically favored.
- Many multinational consumer product firms centralize decisions about manufacturing
and purchasing to realize scale economies, but decentralize marketing and sales decisions
to local brand managers in different countries because competitive conditions differ from
country to country and local adaptation is required.
- Decentralization is favoured in environments that are characterized by high uncertainty
and rapid change. In these conditions, centralization slows down decision making and put
the firm in competitive disadvantage

Tall Hierarchies

- Tall Hierarchy: Organizations with many layers of management.

- As an organization gets larger it becomes taller
- As businesses grow, they often undertake more activities, creating problems of
coordination and control and once again the organization need to become more tall

Span Of Control

- The number of direct reports a manager has.

- The number of direct reports a manager can handle depends on the nature of the work
being supervised, how visible the performance of subordinates is and the extent of
decentralization within the organization.
- If the work of the subordinates is visible and easy to measure, and if he subordinates are
empowered to make many decisions by themselves, managers can operate with a wised
span of control.
- The tallness of a business depends on the span of control that is feasible, which in turn
depends on the nature of the work, the visibility of subordinate performance and the
extent of decentralization within the organization

Problems With Tall Hierarchies:

- Tendency for information to get accidentally distorted as it goes through the layers.
- Deliberate distortion by midlevel managers, who want to pursue an agenda of their own
(influence costs: The loss of efficiency caused by deliberate information distortion for
personal gain within an organization.)
- Expensive. The salaries and benefits of a tall organization can add up to a couple of
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thousands of dollars.
- Difficult to change. In tall hierarchies, there is more centers of powers and influencers,
and thus more voices arguing against change.

Flat Hierarchies

- Flat hierarchies: Organizations with few layers of management.

- Most firms start small and then become big.

Delayering: Reducing the Size of a Hierarchy

- Given the disadvantages associated with tall hierarchies, many firms attempt to limit the
size of the management hierarchy.
- Delayering is the reduction of the number of layers in a hierarchy
- Delayering is based on the assumption that when times are good, firms tend to expand
their management hierarchies beyond the point of efficiency.
- The bureaucratic inefficiencies associated with a tall hierarchy become evident only
when the competitive environment becomes tougher, at which time mangers seek to
delayer the organization
- Delayering, and simultaneously widening spans of control, is also seen as a way of
enforcing greater decentralization within an organization and reaping the associated
efficiency gains.
- Delayering has also been prompted by the realization that large firms can function with
relatively flat structures if their organization architecture is designed correctly
- CEOs have a very wide span of control

Designing Structure: Horizontal Differentiation

- Horizontal differentiation is concerned with how the organization is divided into subunits

Functional Structure

- A Functional Structure is a structure that follows the obvious division of labor within the
firm, with different functions focusing on different tasks.
- Ex. Production functions, R&D Function, etc.
- A top manager, such as a CEO, normally oversees these functions.
- Functions themselves can be and are often divided into subunits.
- Further horizontal differentiation within functions is typically on the basis of similar
tasks and processes.
- This structure can work well for a firm that is active in a single line of business and
focuses on a single geographic area.
- Problems can develop once the firm expands into different business lines.
- Problems of coordination and control arise when different business areas are managed
within the framework of a functional structure
- It becomes difficult to identify the profitability of each distinct business when the
activities of businesses are scattered across various functions.
- There is also the lack of accountability, since there is no management team or manager
responsible for the performance of each business.
- There may also be difficulty in achieving a tight coordination between functions needed
to effectively run the business
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Multidivisional Structure

- A structure in which a firm is divided into different division, each of which is responsible
for a distinct business area.
- Each division is set up as a self-contained, largely autonomous entity with its own
functions
- Responsibility for operating decisions and business-level strategy is typically
decentralized to the divisions, which are then held accountable for their performance.
- Headquarters is responsible for the overall strategic development of the firm, for the
control of the various divisions, for allocating capital between divisions, for supervising
and coaching the managers who run each division, and for transferring valuable skills
between divisions.
- The divisions are generally left alone to run their daily operations as long as they hit the
performance targets.
- Multidivisional structures creates an internal environment that gets divisional managers
to focus on efficiency
- The high level of responsibility and accountability implies that divisional managers have
few alibis for poor performance, motivating them to focus on improving efficiency.
- The desire for capital to grow their businesses, and for pay increases and bonuses, creates
further incentives for divisional managers to focus on improving the competitive
positions of the businesses under their control
- If the head office puts too much pressure on divisional managers to improve
performance, this can result in some of the worst practices of management.
- To guard against this possibility, head office managers need to develop a good
understanding of each division, set performance goals that are attain- able, and have staff
who can regularly audit the accounts and operations of divisions to ensure that each
division is not being managed for short-term results or in a way that destroys its long-
term competitiveness.

Geographic Structure:

- The main subunits of the organization are geographic areas

- It is a structure in which a firm is divided into different units on the basis of geography
- Each area division tends to be a self-contained, largely autonomous entity.
- Each may have its own set of functions
- Operations authority and strategic decisions relating to each of these activities may be
decentralized to each area, with headquarters retaining authority for the overall strategic
direction of the firm and financial control.
- This structure facilitates responsiveness to local market conditions. Since decision-
making responsibilities are decentralized, each area can customize product offerings,
marketing strategy and business strategy to the local conditions.
- This structure also encourages fragmentation of the organization into highly autonomous
entities, which can make it difficult to transfer core skills between areas
- It may also lead to the duplication of functions, which leads to perfmoance inefficiency
of the organization.
- Many international businesses operate with a hybrid geographic-functional structure to
solve the problems associated with geographic structures.
- This structure can be unwieldy when a firm is engaged in several different businesses.

Matrix Structure
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- An organization with two overlapping hierarchies.

- In matrix structures, managers try to combine two different organizing philosophies in a
single design.
- Diversified businesses, as well as businesses that are subject to rapid change are most
likely to use a Matrix Structure
- A matrix structure can be clumsy and bureaucratic.
- It requires so many meetings that it is difficult to get any work done.
- The dual hierarchy structure can lead to conflict and perpetual power struggles between
the different sides of the hierarchy
- It can also prove difficult to ascertain accountability for a firm’s actions.
- In order for a Matrix Structure to work successfully, one side of the matrix must be given
a primary role while the other is given a support role. Clear goals should be well
prioritized so that when conflict occurs, the goals help to indicate what is most important.

Designing Structure: Integrating Mechanisms

- One way of achieving coordination is through centralization.

- If the coordination task is complex, however, centralization may not be effective.
- Higher-level managers responsible for achieving coordination can soon become
overwhelmed by the volume of work required to coordinate the activities of various
subunits, particularly if the subunits are large, diverse, or geographically dispersed.
- When this is the case, managers look toward integrating mechanisms, both formal and
informal, to help achieve coordination.

Formal Integrating Mechanism

- The formal integrating mechanisms used to coordinate subunits vary in complexity from
simple direct contact and liaison roles, to teams, to a matrix structure
- The greater the need for coordination among subunits, the more complex formal
integrating mechanisms needs to be.
- Direct contact between subunit managers is the simplest integrating mechanism
- Direct contact may not be effective, if managers have differing orientations that impede
coordination, this can occur due to managers having different tasks.
- Liaison roles are more complex then direct contact
- As the need of coordination between subunits increase, integration can be improved by
assigning a person in each subunit to coordinate with another subunit. This causes them
to form a permanent relationship
- When the need for coordination is greater still, firms use temporary or permanent teams
composed of individuals from the subunits that need to achieve coordination.
- Teams often coordinate product development efforts, but they can be useful when any
aspect of operations or strategy requires the cooperation of multiple subunits.
- When the need for integration is very high, firms may institute a matrix structure, in
which all roles are viewed as integrating roles.
- This structure is designed to maximize integration among subunits
- However, matrix structures create as many problems as it solves.
- If not well managed, matrix structures can become bureaucratic, inflexible, and
characterized by conflict rather than the hoped-for cooperation.

Informal Integrating Mechanisms: Knowledge Networks

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- In attempting to alleviate or avoid the problems associated with formal integrating

mechanisms in general and matrix structures in particular, firms with a high need for
integration have been experimenting with an informal integrating mechanism: knowledge
networks supported by an organizational culture that values teamwork and cross-unit
cooperation.
- A knowledge network is a network for transmitting information within an organization
that is based not on formal organization structure, but on informal contacts between
managers within an enterprise and on distributed information systems.
- The great strength of such a network is that it can be a non-bureaucratic channel for
knowledge flows within an enterprise.
- For a network to exist, managers at different locations within the organization must be
linked to each other at least indirectly.
- Coordination if achieved informally through networks rather than by formal integrating
mechanisms such as teams or matrix structure
- For such a network to function effectively it must embrace as many managers as possible.
- Establishing firm-wide knowledge networks is difficult.
- Techniques that establish knowledge networks include information systems, management
development policies, and conferences.
- Firms are using distributed computer and telecommunications information systems to
provide the foundation for informal knowledge networks.
- Firms are also using management development programs to build informal networks.
- Tactics include rotating managers through various subunits regularly so they build their
own informal network and using management education programs to bring managers of
subunits together so they can become acquainted.
- Knowledge networks by themselves may not be sufficient to achieve coordination if
subunit managers pursue subgoals that are at variance with firmwide goals.
- For a knowledge network to function properly (and also for a formal matrix structure to
work) managers must share a strong commitment to the same goals.
- To eliminate this flaw, the firm must have a strong organizational culture that promotes
teamwork and cooperation.

Strategy, Coordination, And Integrating Mechanisms

- The degree of coordination required and the integrating mechanisms used vary depending
on the strategy of the firm.
- We saw that a matrix structure is one way of achieving such coordination. Another more
common solution is to form temporary teams to oversee the development and
introduction of a new product.
- There is also a high need for coordination in firms that face an uncertain and highly
turbulent competitive environment, where rapid adaptation to changing market conditions
is required for survival. Temporary teams are often used to effect such coordination.
- In addition to formal integrating mechanisms, firms with a high need for coordination
among subunits, such as those based in turbulent high-technology environments, would
do well to foster informal knowledge networks to facilitate greater coordination among
subunits.
- In contrast, if a firm is based in a stable environment characterized by little or no change,
and if developing new products is not a central aspect of the firm’s business strategy, the
need for coordination among functions may be lower.
- These mechanisms coupled with a strong culture that encourages employees to share the
same goals and to cooperate with each other for the benefit of the entire organization,
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may be all that is required to achieve coordination among functions.

- For multi business firms organized into product divisions, the need for coordination
varies with the type of diversification strategy managers are pursuing. In particular, if a
firm has diversified into related businesses and is trying to realize economies of scope by
sharing inputs across product divisions, or is trying to boost profitability by leveraging
valuable core competencies across product divisions, it will need integrating mechanisms
to coordinate product division activities.
- Liaison roles, temporary teams, and permanent teams can all be used to ensure such
coordination
- If top management is focusing primarily on boosting profitability through superior
governance, and if each division is managed on a stand-alone basis with no attempt to
leverage competencies or realize economies of scope, the firm may well operate well
with minimal or no integrating mechanisms between divisions.
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Chapter 9

Working With People Is Just The Beginning:

- Human Resource Management: is the process of determining human resources needs and
then recruiting, selecting, developing, motivating, evaluating, compensating, and
scheduling employees to achieve organizational goals.
- In the HR profession we are not only of service to an organization, but we are also of
service to the very society of which we are all a part.

Developing the Ultimate Resource

- One reason why human resource management is receiving increased attention is the
major shift from traditional manufacturing industries to service and high-tech
manufacturing industries that require highly technical job skills. This shift means that
many workers must be retrained for new, more challenging jobs.
- Some people have called employees the “ultimate resource”
- The problem is that in the past human resources were relatively plentiful, so there was
little need to nurture and develop them.
- Various functional departments conducted jobs relating to HRM.
- Today the job of human resource management has taken on an entirely new role in the
firm.
- 50 percent of their HR departments’ roles will involve providing strategic input and less
time and energy will be spent on HR administration
- In the future HR may become the most critical function, in that it will be responsible for
dealing with all aspects of a business’s most critical resource—people. In fact, the human
resources function has become so important that it is no longer the responsibility of just
one department; it is a responsibility of all managers.
- Most human resources functions are shared between the professional human resources
manager and the other managers

The Human Resources Challenge

- The changes in the business environment that have had the most dramatic impact on the
workings of the free enterprise system are the changes in the labor force.
- Managing talent was the number one human resources challenge worldwide and there
were predictions that it would remain at or near the top of executive agendas for the
foreseeable future.
- other critical challenges: managing demographics, improving leadership development,
managing work-life balance, transforming HR into a strategic partner.
- To create people advantage and overcome some of the human resource challenges
identified, the report suggested five major steps to be taken by companies:
(1) understand the external environment,
(2) understand the internal environment,
(3) select the most critical human resource topics and set priorities,
(4) initiate projects with dedicated teams,
(5) secure support from top management.
- three greatest opportunities facing HR professionals today are: (1) to be relentless in
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ensuring that every undertaking is well sponsored and has positive business impact; (2) to
be a catalyst for constructive change by building on the strengths of the organization, (3)
to build integrated and aligned people systems that differentiate the organization in the
marketplace and that can be self-managed.

DETERMINING YOUR HUMAN RESOURCES NEEDS

- Five steps are involved in the human resources planning process:

1. Preparing a human resources inventory of the organization’s
employees. This inventory should include ages, names, education
(e.g., languages spoken), capabilities, training, specialized skills, and
other information pertinent to the specific organization. Such
information reveals whether the labour force is technically up to date,
thoroughly trained, and so forth.
2. Preparing a job analysis. A job analysis is a study of what is done by
employees who hold various job titles. Such analyses are necessary to
recruit and train employees with the necessary skills to do the job. The
result is two written statements: job descriptions and job
specifications. A job description specifies the objectives of the job,
the type of work to be done, the responsibilities and duties, the
working conditions, and the relationship of the job to other functions.
Job specifications are a written summary of the minimum
qualifications (e.g., education and skills) required of workers to do a
particular job. In short, job descriptions are statements about the job,
whereas job specifications are statements about the person who does
the job.
3. Assessing future human resources demand. Because technology
changes rapidly, training programs must be started long before the
need is apparent.
4. Assessing future human resources supply. The labour force is
constantly shifting: getting older, becoming more technically oriented,
attracting more women, and so forth. There are likely to be increased
shortages of some workers in the future (e.g., computer and robotic
repair workers) and an oversupply of others (e.g., assembly line
workers).
5. Establishing a strategic plan. The plan must address recruitment,
selection, training and development, evaluation, compensation,
scheduling, and career management for the labour force.
- Some companies use advanced technology to perform this human resources planning
process more efficiently.

RECRUITING EMPLOYEES FROM A DIVERSE POPULATION

- Recruitment is the set of activities used to obtain a sufficient number of the right people
at the right time. The end result is to have a pool of qualified applicants.
- Recruiting has become very difficult, for several reasons:
•Some organizations have policies that demand promotions from within, operate under
union contracts, or offer low wages, which makes recruiting and keeping employees
difficult or subject to outside influence and restrictions.
•There are legal guidelines that surround hiring practices. The rest of employees are
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protected by provincial or territorial jurisdiction.

•The emphasis on corporate culture, teamwork, and participative management makes it
important to hire people who not only are skilled but also fit in with the culture and
leadership style of the organization.
•Sometimes people with the necessary skills are not available; in this case, workers must
be hired and then trained internally.
- Because recruiting is a difficult chore that involves finding people who are an
appropriate technical and social fit, human resources managers turn to many sources for
assistance
- These sources are classified as either internal or external.
- Internal sources include employees who are already within the firm (and may be
transferred or promoted) and employees who can recommend others to hire.
- Using internal sources is less expensive than recruiting outside the company. The greatest
advantage of hiring from within is that it helps maintain employee morale.
- external recruitment sources such as advertisements, public and private employment
agencies, school placement offices, management consultants, professional organizations,
referrals, and walk-in applications.
- While most external sources are straightforward, some may involve difficult decisions.

SELECTING EMPLOYEES WHO WILL BE PRODUCTIVE

- Selection is the process of gathering information and deciding who should be hired, under
legal guidelines, for the best interests of the individual and the organization.
- A typical selection process involves five steps:
1. Obtaining complete application forms.
2. Conducting initial and follow-up interviews. A staff member from the
human resources department often screens applicants in a first
interview. If the interviewer considers the applicant a potential
employee, the manager who will supervise the new employee
interviews the applicant as well. It’s important that managers prepare
adequately for the interview to avoid selection decisions they may
regret. This includes asking all candidates the same questions so as to
be able to fairly compare answers.
3. Giving employment tests. Organizations use tests to measure basic
competencies in specific job skills (e.g., word processing) and to help
evaluate applicants’ personalities and interests. In using employment
tests, it’s important that they be directly related to the job. Many
companies test potential employees in assessment centres, where
applicants perform actual tasks of the real job. Such testing is likely to
make the selection process more efficient and will generally satisfy
legal requirements.
4. Confirming background information. Most organizations now confirm
a candidate’s work record, school record, credit history, and
references more carefully than they have in the past.
5. Establishing trial (probationary) periods. Often, an organization will
hire an employee conditionally. This enables the person to prove his
or her worth on the job. After a specified probationary period (perhaps
three months or a year), the firm may either permanently hire or
discharge that employee on the basis of evaluations from supervisors.
The process helps ensure that new employees meet the requirements
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in all relevant areas, including communication skills, education,

technical skills, experience, personality, and health.

Hiring Contingent Workers

- Contingent workers are defined as workers who do not have regular, full-time
employment.
- A varying need for employees is the most common reason for hiring contingent workers.
Contingent workers receive few benefits; they are rarely offered health insurance,
vacation time, or private pensions. They also tend to earn less than permanent workers
do.
- Some companies see using temporary workers as a way of weeding out poor workers and
finding good hires. Because temporary workers are often told that they may, at some
point, be hired as permanent workers, they are often more productive than those on the
permanent payroll.
- Many people find that temporary work offers them a lot more flexibility than permanent
employment.
- In an era of downsizing and rapid change, educated or highly skilled contingent workers
have even found that temping can be more secure than full-time employment.

TRAINING AND DEVELOPING EMPLOYEES FOR OPTIMUM PERFORMANCE

- Training and development include all attempts to improve productivity by increasing an

employee’s ability to perform.
- Training focuses on short-term skills, whereas development focuses on long-term
abilities.
- But both training and development programs include three steps:
(1) assessing the needs of the organization and the skills of the
employees to determine training needs;
(2) designing training activities to meet the identified needs; and
(3) evaluating the effectiveness of the training.

- Employee orientation is the activity that initiates new employees to the organization, to
fellow employees, to their immediate supervisors, and to the policies, practices, values,
and objectives of the firm.
- On-the-job training is the most fundamental type of training. The employee being trained
on the job immediately begins his or her tasks and learns by doing, or watches others for
a while and then imitates them, right at the workplace. On-the-job training is obviously
the easiest kind of training to implement when the job is relatively simple (such as
clerking in a store) or repetitive such as collecting refuse, cleaning carpets, or mowing
lawns). More demanding or intricate jobs require a more intense training effort.
- Apprentice programs involve a period during which a learner works alongside an
experienced employee to master the skills and procedures of a craft. Workers who
successfully complete an apprenticeship earn the classification of journeyman. In the
future, there are likely to be more but shorter apprenticeship programs to prepare people
for skilled jobs in changing
- Off-the-job training occurs away from the workplace and consists of internal or external
programs to develop any of a variety of skills or to foster personal development.
- Online training gives employers the ability to provide consistent content that is tailored to
specific employee training needs, at convenient times, to a large number of employees.
- Vestibule training (near-the-job training) is done in classrooms where employees are
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taught on equipment similar to that used on the job.

- Job simulation is the use of equipment that duplicates job conditions and tasks so that
trainees can learn skills before attempting them on the job. Job simulation differs from
vestibule training in that the simulation attempts to duplicate the exact combination of
conditions that occur on the job.

Management Development

- Management development, is the process of training and educating employees to become

good managers and then monitoring the progress of their managerial skills over time.
- Most management training programs also include several of the following:
1. On-the-job coaching. A senior manager will assist a lower- level manager by
teaching him or her needed skills and generally providing direction, advice, and
helpful feedback.
2. Understudy positions. Job titles such as undersecretary and assistant are part of a
relatively successful way
3. job rotation. Through job rotation, top managers gain the broad picture of the
organization necessary to their success.
4. Off-the-job courses and training. Managers periodically go to schools or seminars for
a week or more to hone their technical and human relations skills.
- both training and development budgets and initiatives need to be reviewed regularly to
ensure that maximum impact is being achieved and that organizations of all sizes are
getting the best return on their investments

Empowering Workers

- Directing involves giving assignments, explaining routines, clarifying policies, and

providing feedback on performance.
- Empowerment means giving employees the authority (the right to make a decision
without consulting the manager) and responsibility (the requirement to accept the
consequences of one’s actions) to respond quickly to customer requests.
- Enabling is the term used to describe giving workers the education and tools they need to
make decisions. Clearly, enabling is the key to the success of empowerment. Without the
right education, training, coaching, and tools, workers cannot assume the responsibilities
and decision-making roles that make empowerment work.

Networking

- Networking is the process of establishing and maintaining contacts with key managers in
one’s own organization and in other organizations and using those contacts to weave
strong relationships that serve as informal development systems.
- Of equal or greater importance to potential managers is a mentor, a corporate manager
who supervises, coaches, and guides selected lower-level employees by introducing them
to the right people and generally being their organizational sponsor.
- Networking is important at all levels of an organization and also through professional
associations and organizations
- Networking and mentoring can go beyond the business environment.

Diversity in Management Development

- More and more, women are now entering established networking systems or, in some
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instances, creating their own.

- Other ethnic groups are networking as well.
- Companies that take the initiative to develop female and minority managers understand
three crucial principles:
(1) grooming women and minorities for management positions isn’t
about legality or morality; it is about bringing more talent in the door— the key
to long-term profitability;
(2) the best women and minorities will become harder to attract and retain,
so the companies that start now will have an edge later
(3) having more women and minorities at all levels means that businesses can
serve their female and minority customers better.

EVALUATING EMPLOYEE PERFORMANCE TO GET OPTIMUM RESULTS

- A performance appraisal is an evaluation in which the performance level of employees is

measured against established standards to make decisions about promotions,
compensation, additional training, or firing.
- One way to look at the performance appraisal process is to consider these six steps:
1. Establishing Performance Standards. This is a crucial step. Standards
must be understandable, subject to measurement, and reasonable.
They must be accepted by both the manager and subordinate.
2. Communicating Standards. Employees must be told clearly and
precisely what the standards and expectations are and how they are to
be met.
3. Evaluating Performance. If the first two steps are done correctly,
performance evaluation is relatively easy. It is a matter of evaluating
the employee’s behaviour to see if it matches standards.
4. Discussing Results. Discussing an employee’s successes and areas that
need improvement can provide managers with an opportunity to be
understanding and helpful and to guide the employee to better
performance.
5. Taking Corrective Action. A manager can take corrective action or
provide corrective feedback to help the employee perform his or her
job better.
6. Using the Results to Make Decisions. Decisions about promotions,
compensation, additional training, or firing are most often based on
performance evaluations
- The goal is to get an accurate, comprehensive idea of the worker’s abilities.

COMPENSATING EMPLOYEES: ATTRACTING AND KEEPING THE BEST

- Companies also compete for employees.

- Compensation is one of the main marketing tools that companies use to attract (and
retain) qualified employees, and it is one of the largest operating costs for many
organizations.
- A carefully managed compensation and benefits program can accomplish several
objectives:
•Attracting the kinds of people needed by the organization, and in sufficient numbers.
•Providing employees with the incentive to work efficiently and productively.
•Keeping valued employees from leaving and going to competitors, or starting competing
firms.
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•Maintaining a competitive position in the marketplace by paying competitively and by

keeping costs low through high productivity from a satisfied workforce.
•Providing employees with some sense of financial security through insurance and
retirement benefits.

Pay Equity

- Pay equity refers to equal pay for work of equal value

- Canada has a variety of pay equity laws and policies, depending on where one works
- For some organizations, legislation has been difficult to implement.

Pay Systems

- How an organization chooses to pay its employees can have a dramatic effect on
motivation and productivity.
- Some of the different pay systems are as follows:
•Salary: Fixed compensation computed on weekly, bi-weekly, or monthly pay periods.
Salaried employees do not receive additional pay for any extra hours worked.
•Hourly Wage or Daywork: Wage based on number of hours or days worked, used for
most blue-collar and clerical workers. This does not include benefits such as retirement
systems, which may add 30 percent or more to the total package.
•Piecework System: Wage based on the number of items produced rather than by the
hour or day. This type of system creates powerful incentives to work efficiently and
productively.
•Commission Plans: Pay based on some percentage of sales. Often used to compensate
salespeople, commission plans resemble piecework systems.
•Bonus Plans: Extra pay for accomplishing or surpassing certain objectives. There are
two types of bonuses: monetary and cashless.
•Profit-Sharing Plans: Annual bonuses paid to employees based on the company’s profits.
The amount paid to each employee is based on a predetermined percentage. Profit-
sharing is one of the most common forms of performance-based pay.
•Gain-Sharing Plans: Annual bonuses paid to employees based on achieving specific
goals such as quality measures, customer satisfaction measures, and production targets.
•Cost-of-Living Allowances (COLAs): Annual increases in wages based on increases in
the Consumer Price Index. This is usually found in union contracts.
•Stock Options: Right to purchase stock in the company at a specific price over a specific
period of time. Often this gives employees the right to buy stock cheaply despite huge
increases in the price of the stock.

Compensating Teams

- team-based pay programs are not as effective or as fully developed as managers would
hope. Measuring and rewarding individual performance on teams while at the same time
rewarding team performance can be tricky. Nonetheless, it can be done
- Skill-based pay and profit-sharing are the two most common compensation methods for
teams.
- Skill-based pay (also known as “pay for knowledge”) is related to the growth of both the
individual and the team. Base pay is raised when team members learn and apply new
skills
- In most gain-sharing systems, bonuses are based on improvements over a previous
performance baseline
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- It is important to reward individual team players also

Fringe Benefits

- Fringe benefits are benefits that provide additional compensation to employees.

- Can be divided into 3 groups: One group derives from federal or provincial legislation
and requires compulsory deductions from employees’ pay cheques, employer
contributions, or both. The second group consists of legally required benefits, including
vacation pay, holiday pay, time and a half or double time for overtime, and unpaid
maternity leave with job protection. The third category includes all other benefits and
stems from voluntary employer programs or from employer–union contracts
- Cafeteria-style benefits plans (also known as flexible benefits plans), in which employees
can choose the benefits they want up to a certain dollar amount, continue to grow in
popularity.
- Managing the benefits package will continue to be a major human resources issue in the
future.
- Managing benefits can be especially complicated when employees are located in other
countries.

SCHEDULING EMPLOYEES TO MEET ORGANIZATIONAL AND EMPLOYEE NEEDS

- A flextime plan gives employees some freedom to choose when to work, as long as they
work the required number of hours.
- Flextime plans are designed to allow employees to adjust to the demands of the times,
including two-income families.
- There are some real disadvantages to flextime as well.
- It cannot be offered in assembly line processes, where everyone must be at work at the
same time. It also is not effective for shift work.
- Managers often have to work longer days to assist and supervise employees. Some
organizations operate from 6 a.m. to 6 p.m. under flex- time—a long day for supervisors.
- Communication more difficult; certain employees may not be there when others need to
talk to them.
- Another popular option is a t. That means that an employee works a full number of hours
in less than the standard number of days.
- Although many companies offer flexible schedules, few employees take advantage of
them. Most workers report that they resist using the programs because they fear it will
hurt their careers. Managers signal (directly or indirectly) that employees who change
their hours are not serious about their careers.
- the most common form of alternative work arrangement is flexible hours, followed by
weekend work
- Reduced work weeks (e.g., job-sharing and work-sharing) and compressed work- weeks
are not widespread, with each being reported by fewer than one in ten workers.

Telework (Telecommuting)

- Telework, also known as telecommuting, occurs when paid workers reduce their
commute by carrying out all, or part, of their work away from their normal place of
business. .
- Increased productivity and improved retention and morale were cited as the greatest
benefits among firms that allow telework.
- Telework can also be a cost saver for employers.
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Job-Sharing Plans

- Job sharing is an arrangement whereby two part-time employees share one full-time job.
- The concept has received great attention as more and more women with small children
have entered the labour force.
- The benefits include:
• employment opportunities for those who cannot or prefer not to work full-time
• a high level of enthusiasm and productivity
• reduced absenteeism and tardiness
•ability to schedule people into peak demand periods
• retention of experienced employees who might have left otherwise
- Disadvantages include having to hire, train, motivate, and supervise twice as many
people and to prorate some fringe benefits.

CAREER MANAGEMENT: UP, OVER, AND OUT

- Employees don’t always stay in the position they were initially hired to fill. They may
excel and move up the corporate ladder or fail and move out the front door. In addition to
being moved through promotion and termination, employees can be moved by
reassignment and retirement. Of course, employees can choose to move themselves by
quitting and going to another company.

Promoting and Reassigning Employees

- Many companies find that promotion from within the company improves employee
morale.
- Promotions are also cost-effective in that the promoted employees are already familiar
with the corporate culture and procedures and do not need to spend valuable time on
basic orientation.
- Due to the prevalence of flatter corporate structures, there are fewer levels for employees
to reach now than there were in the past. Therefore, it is more common today for workers
to move over to a new position than to move up to one.
- Such transfers allow employees to develop and display new skills and to learn more about
the company overall. This is one way of motivating experienced employees to remain in
a company with few upward advancement opportunities.

Terminating Employees

- Downsizing and restructuring, increasing customer demands for greater value, and the
relentless pressure of global competition and shifts in technology have human resources
managers struggling to manage layoffs and firings
- For those that remain, the job losses and the threat of future job losses has introduced
strong feelings that may include fear, insecurity, and uncertainty; frustration, resentment,
and anger; sadness, depression, and guilt; and unfairness, betrayal, and distrust. Insecurity
undermines motivation, so HRM must deal with this issue.
- Even companies that regain financial strength, however, are hesitant to rehire new full-
time employees.
- The cost of terminating employees is prohibitively high.
- To save money, many companies are either using contingent workers or outsourcing
certain functions.
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Retiring Employees

- In addition to layoffs, another tool used to downsize companies is to offer early

retirement benefits to entice older (and more expensive) workers to retire.
- The advantage of offering early retirement benefits over laying off employees is that
early retirement offers increase the morale of the surviving employees.
- Retiring senior workers also increases promotion opportunities for younger employees.

Losing Employees

- some employees will choose to pursue opportunities elsewhere.

- Learning about their reasons for leaving can be invaluable in preventing the loss of other
good people in the future.

LAWS AFFECTING HUMAN RESOURCES MANAGEMENT62

- The Charter of Rights and Freedoms, guarantees equality before the law for every
Canadian.
- The Human Rights Act seeks to provide equal employment opportunities without regard
to people’s race, national or ethnic origin, colour, religion, age, sex, sexual orientation,
marital status, family status, disability, or conviction for an offense for which a pardon
has been granted.

Employment Equity

- Employment equity refers to employment activities designed to increase employ- ment

opportunities for certain groups, given past discrimination toward these groups.
- Reverse discrimination refers to the unfairness that unprotected groups (say, whites or
males) may perceive when protected groups receive preference in hiring and promotion.
Charges of reverse discrimination have occurred when companies have been perceived as
unfairly giving preference to women or minority group members in hiring and promoting.

Laws That Protect the Disabled

- Legislation protects people with disabilities.

- Businesses cannot discriminate against people on the basis of any physical or mental
disability.
- Employers are required to give disabled applicants the same consideration for
employment as people without disabilities.
- It also requires that businesses make “reasonable accommodations” for people with
disabilities.

Laws That Protect Older Employees

- Generally speaking, employees are guaranteed protection against age discrimination in

the workplace.
- In addition, the federal government and the provinces protect over-65 workers in their
labour or human rights legislation.
- Changes to the ban on mandatory retirement age provide opportunities for companies to
retain workers who wish to work past age 65
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Effects of Legislation

- Clearly, laws and regulations affect all areas of HRM.

- It should be apparent that a career in HRM offers a challenge to anyone willing to put
forth the effort.
- In summary:
• Employers must know and act in accordance with the legal rights of their employees or
risk costly court cases.
•Legislation affects all areas of HRM, from hiring and training to compensating
employees.
•Managers must be sensitive not only to legal requirements, but also to union contracts
and social standards and expectations, which can be even more demanding.
• Court cases have made it clear that it is sometimes legal to go beyond providing equal
rights for minorities and women to provide special employment (employment equity) and
training to correct past discrimination.
•New court cases and legislation change HRM almost daily. The only way to keep
current is to read business literature and become familiar with the issues.

Chapter 10

- Leadership - is the process of motivating, influecing, and directing others in the

organization to work productively in pursuit of organizational goals.
- Great managers are able to work through other people to achieve remarkable
transformations in the performance of an organization

Managing and Leading

- Leaders are concerned with doing the right things.
- All managers leaders.
- Management and leadership are not two different tasks that require different skills; they
are the same thing.
- To be effective, managers must lead.
- Successful leadership can be extremely satisfying

Effective Leadership

-Effective leadership – the ability of a leader to get high performance from his or her
subordinates.
-There are five different perspectives on what makes an effective leadership
-The different perspectives are not mutually exclusive

Power influence perspective:

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- Leaders have legitimate power that comes from their hierarchical

position.
- The power that flows from hierarchical position is a blunt instrument
that does not necessarily build commitment from employees to a
vision.
- Attempts to explain leadership effectiveness in terms of the amount of
power possessed by a leader, the type of power and how that power is
used to influence others within the organization
- Effective leaders rely on the personal power flows from expertise, a
network of allies, and individuals attributes as well as the power from
their formal position.
- Legitimate hierarchical power is a blunt instrument that does not
necessarily build commitment from employees to a vision.

Trait or competency perspective

- Identifies the traits and competencies of effective leaders

- The “great person” theory of leadership assumes that leaders are “born,
not made” and that leaders are gifted with traits such as tireless energy,
penetrating intuition, uncanny foresight, and irresistible persuasive
powers.
- Some of the abilities that make one effective leaders are:
1 Strategic thinking – refers to the cognitive ability to analyze a
complex situation, abstract from it and draw conclusions about the
best strategy for the firm to follow. Strategic thinking requires a
combination of intelligence and reasoning skills. Ex. Churchill
who saw the WWII or Bill gates. These leaders have high
intelligence and superior reasoning ability.
2 Achievement motivation- is the unconscious concern for achieving
excellence in accomplishments through one’s individual effects.
Such individuals have a high degree of intrinsic drive (goal driven)
Ex. Bill gates when he dropped out of Harvard to start his own
company
3 Power motivation – the unconscious drive to acquire status and
power to have an impact on others. Leaders want to accumulate
power and use it to influence others because it gives them intrinsic
satisfaction. However, power alone doesn’t influence people,
effective leaders act with integrity so employees can trust them.
4 Charisma – the ability of some people to charm or influence
others. ‘Magnetic personalities’ that draws peoples and followers
towards them. Ex. Steve jobs, or Prime Minister Pierre Trudeau.
However, it also causes negative effects in organizations
sometimes when people blindly follow a charismatic leader.
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5 Emotional intelligence – the ability to monitor one’s own and

others’ feelings and emotions, to discriminate among them, and to
use this information to guide one’s thinking and actions.
According to Goleman key components of emotional intelligence
are:
i) Self-Awareness: the ability to understand one’s own
moods, emotions, and drives and as well as their
effect on others
ii) Self-Regulation: the ability to control or redirect
disruptive impulses or moods and to think before
acting
iii) Motivation: a passion for work that goes beyond
money or status, and a propensity to purse goals
with energy and persistence
iv) Social skills: friendliness with a purpose
- Research shows that emotionally intelligent senior managers have
increased earning goals by 20%.
- While, divisional managers who are emotionally intelligent cans help
solve various problems within a company.. Another writer: Ed Locke
says it’s preposterous and all – encompassing. However, research
hasn’t proven if it makes a leader more effective
- Limitations and implications – not all traits are equally important.
Also, effective leaders are NOT born but created through training, etc.

Behavior perspective

-Proclaims that certain behaviors towards subordinates are related to leadership effectiveness.
The assumption is that certain leadership behaviors result in greater commitment on the part of
subordinates and hence higher performance. There are two different leadership styles:

ii. People – oriented behavior: A leadership style that includes showing mutual trust
and respect for subordinates, demonstrating genuine concern for their needs, and
having a desire to look out for their welfare
iii. Task-oriented behavior: The style of leaders who assign employees to specific
tasks, clarify their work duties and procedures, ensure that they follow company
rules, and push them to reach their performance capacity.
There is no single better leadership style they are both more effective when used
in proportion and it also depends on the situation.

The contingency perspective

- Says that the appropriate behaviors for a leader to adopt depend on the context, what
works in one situation won’t necessary work in every situation
- There are three different contingency perspectives are:
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o 1. Fiedlers contingency theory – theory says that effectiveness depends on three

situational factors:
- Leader-member relations: How well followers respect, trust, and like
their leaders.
- Task structure: The degree to which the jobs of subordinates are highly
structured with clear work responsibilities, well- defined tasks, explicit
goals, and specific procedures. Ex. A fashion designer has poor task
structure in comparison to a factory worker.
- Position power: The power that derives from formal hierarchical power
over subordinates, including the legitimate power to hire, fire, reward,
and punish subordinates.
 Fiedler said contingencies are favorable when leader member relations were good,
task structure were clearly defined and position power was high. Contingencies are
unfavorable when leader member relations are poor, task structure ill-defined, and
position power was low.
 Leadership styles should be matched with situations. Unfavorable situation and very
favorable are well suited for task-oriented people and moderately favorable situations
are suited for people oriented leaders.
o Path – goal theory – says that leaders can change their styles according to the
situation.
- Core proposition is that leaders can increase performance by clarifying
the path and clearing the path and by identifying and offering rewards.
- Clarifying path means leaders work with subordinates to help them
identify and learn behaviors that will lead to goal attainment.
- Clearing path means taking care of the problems that make it difficult
for leaders to attain their goals.
- Identifying and offering rewards means identifying what’s important to
people and using it motivate them. Using the right incentive: pay,
awards, etc
- Path goal theory describes four different leadership styles:
a. Directive leadership – directive leadership occurs when leaders
tell subordinates exactly what they are supposed to do, giving
them goals, specific tasks, guidelines for performing those tasks,
and the like. Similar to task-oriented leadership
b. Support Leadership – A leadership style in which the leader is
approachable and friendly, shows concern for the welfare of
subordinates, and treats them as equals. Similar to people-
oriented leadership
c. Participative leadership – A leadership style in which the leader
consults with his or her subordinates, asking for their opinions
before making a decision.
d. Achievement oriented leadership – Occurs when a leader sets
high goals for subordinates, has high expectations for their
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performance, and displays confidence in subordinates,

encouraging and helping them to take on greater responsibilities.
 Path-Goal theory says that two factors determine what leadership style to use:
a. Employee’s abilities
b. Nature of the work environment – refers to task structure,
dynamics of the work group (cohesive and fragmented) and
formal power in organization.
 Strengths:
o Different leadership styles
o Promotes the idea that leaders are made NOT born
 Weaknesses:
o At core, no one leader only refers to one leadership style they all incorporate
different ones.
o Only provides a partial definition of effective leadership
o Leadership substitutes
- Contingencies that may act as substitutes for a leadership style.
- “Substitutes” for leadership styles
- Self-leadership in employees reduces the need for a leadership style
- There is no need for leaders sometimes when workers can co-operate
well with each other.

Transformational perspective

-Fairly new created within the last two decades.

-Suggests that effective leaders ‘transform’ organizations through their vision, communication,
and ability to build commitment to that vision among employees. -Transformational leader – is an
agent of strategic and organizational change ex. Bill Gates, Steve Jobs, etc.

-Leadership experts have come to recognize the importance of transformational leadership.

- In a world where the only constant is change, long-established organizations periodically find
their competitive position under attack from new rivals who are utilizing new technology and
new business models to gain market share.
-Changes the organization

-Guide employees towards a new set of corporate values and behaviors

-Transactional leader – a leader who helps an organization achieve its current objective. Tries to
run the company efficiently without changing the organization’s course. They focus on leader
behaviours that improve employee performance and satisfaction within a given context.

Elements of Transformational Leaderships

- First, transformational leaders envision a different future for the

organizations they are leading.
- Second, transformational leaders persistently communicate this new
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vision to employees. They use every opportunity to state what the

vision is and what values employees must adopt to execute that vision.
- Third, transformational leaders model desired behaviours. They
recognize that to succeed, they must lead by example.
- Fourth, transformational leaders empower employees to implement the
grand strategic visions they have articulated.
- Fifth, transformational leaders make meaningful changes in the
activities and architecture of an organization.
- Sixth, transformational leaders lead with integrity. They recognize that
people will not follow someone they do not trust, and that a reputation
for fairness and candour is among the most important assets a leader
can have
- Finally, transformational leaders create an enduring organization that
continues to operate efficiently and effectively long after they are
gone.
- They might be charismatic or they might not. Charisma is a personality
trait that gives a leader power and influence over followers, whereas
transformational leadership is a set of behaviours that managers use to
lead a change process.

Evaluating Transformational Leaders

- Subordinates are more satisfied and have greater commitment to their

organizations under transformational leaders.
- They also perform better, engage in more organizational citizenship
behaviours, and tend to make decisions that are more creative.
- Leaders are transformational when they successfully bring about
change, rather than when they engage in certain behaviours that we call
transformational.
- Another concern is that some writers present transformational
leadership as a universal rather than a contingency-oriented approach.
However, recently writers have begun to explore the idea that
transformational leader- ship may be more appropriate in some
situations than in others

GENDER DIFFERENCES IN LEADERSHIP

- Women tend to be higher in men, in respect to leadership qualities.

- Women, however, continue to face limitations on leadership through
gender stereotypes
- both male and female leaders must be sensitive to the fact that
followers have expectations about how leaders should act, and leaders
who deviate from those expectations may get negative evaluations
from their subordinates
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Chapter 11

Finance – is the function in a business that acquires funds for the firm and manages those funds within
the firm. Finance activities include preparing budgets, doing cash flow analysis, and planning for the
expenditure of funds on such assets as plant, equipment, and machinery.
Financial management is the job of managing a firm’s resources so it can meet its goal and objectives.
Financial managers – make recommendations to top executives for improving the financial strength of a
firm.

- Financial managers can make sound financial decisions only if they understand accounting information.
In large and medium-sized organizations, both the accounting and the finance functions are generally
under the control of a chief financial office or a vice-president of finance.

Activities of a financial manager: auditing, managing taxes, advising top management, collecting funds,
controlling funds, obtaining funds, budgeting, planning. Financial managers are responsible for paying
the company’s bills at the appropriate time and for collecting overdue accounts receivable to make sure
that the company does not lose too much money to bad debts

Three common ways for a firm to FAIL financially:

1. Undercapitalization – lacking funds to start and run a business.
2. Poor control over cash flow, and
3. Inadequate expense control.
Ex. Parsley Patch Inc. – two people started a business but didn’t have the financial knowledge to
efficiently run their business, they later hired a CA who taught them the basics and the business ran
happily ever after.

The Importance of Understanding Finance Management

- You do not have to pursue finance as a career to understand finance, which is

important to anyone who wants to start a small business, invest in stocks and
bonds (to be discussed later in this chapter), or plan a retirement fund.
- Also, it’s vital that financial managers in any business stay abreast of changes
or opportunities in finance and prepare to adjust to them. Therefore, financial
managers have become increasingly involved in tax management, and must
keep abreast of changes in tax law. Financial managers also carefully analyze
the tax implications of various managerial decisions in an attempt to minimize
the taxes paid by the business. It’s critical that businesses of all sizes concern
themselves with managing taxes.
- Another responsibility of the firm’s finance department, internal audit, checks
on the journals, ledgers, and financial statements prepared by the accounting
department. Another purpose of an internal audit is to safeguard assets,
including cash.

Financial Planning: is a key responsibility of a financial manager in a business. Financial planning

involves analyzing short-term and long-term money flows to and from the firm.
The overall objective of financial planning is to optimize the firm’s profitability and make the best use of
its money. It has 3 steps:
1. Forecasting both short-term and long-term financial needs
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a. A short-term forecast predicts revenues, costs, and expenses for a period of one year or
less. Part of the short-term forecast may be in the form of:
i. Cash flow forecast: that predicts the cash inflows and cash outflows in future
periods, usually months or quarters. The inflows and outflows of cash recorded in
the cash flow forecast are based on expected sales revenue and costs and
expenses incurred, and when the cash will be collected and costs will need to be
paid
b. A long- term forecast predicts revenue, costs and expense for a period longer than one
year, and sometimes as far as five or ten years in the future. It helps in the making of a
budget. The long-term financial forecast gives top management some sense of the income
or profit potential possible with different strategic plans

Developing budgets to meet those needs

c. The budgeting process depends on the firm’s financial statements (income statements,
balance sheet, cash flow statement.) Budget – a financial plan that sets forth
management’s expectations, and on the basis of those expectations, allocates the use of
specific resources throughout the firm. Often businesses use past budgets to predict the
forecasts of the current budgets. A budget becomes the primary guide for the firm’s
financial operations and financial needs
d. Three types of budget:
i. An operation (master) budget: ties together all of the firm’s other budgets; it is
the projection of dollar allocations to various costs and expenses needed to
operate the business given projected revenue. This budget is made for the
monthly costs for the next year.
ii. A capital budget: highlights a firm’s spending plans for major asset purchases
that often require large sums of money. The capital budget concerns itself with
the purchase of such assets such as buildings, property, and equipment.
iii. A cash budget: estimates a firm’s projected cash inflows and outflows that the
firm can use to plan for any cash shortages or surpluses during a given period
(monthly, quarterly). Cash budgets are important guidelines that assist managers
in anticipating borrowing, debt repayment, operating expenses, and short term
investments.
2. Establishing financial control to see how well the company is doing what it set out to do
a. Financial control is a process in which a firm periodically compares its actual revenue,
costs and expenses with its projected ones. Such control procedures help managers
identify variances to the financial plan and allow them to take corrective action if
necessary. They also provide feedback to help reveal which accounts, which departments,
and which people are varying from the financial plans.

Need for funds: in business the need for funds never seems to cease. There are certain needs for which
the funds must be available:
1. Managing day-to-day needs of the business
a. Financial managers have to make sure funds are available to meet the daily needs.
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b. Money has a time value. Financial managers suggest that they pay bills as late as possible
but try to collect the money it’s owed as fast as it can to maximize the investment
potential.
c. Efficient cash management is also very impt. to small businesses because their access to
capital is much more limited than that of a big business.
2. Controlling credit operations
a. Financial managers know that making credit available helps keep current customers
happy and attracts new ones.
b. A major problem with selling on credit is that some businesses’ assets are tied up in the
firm’s credit accounts when they need the cash to pay for the cost of producing the good
or service
c. An effective collective procedure is to reward creditors that pay before time by discounts.
Another way is to accept bank credit cars and thus not worry about running a credit
department. Bank credit cards ensure that money will be paid back in the given time for a
fee in exchange. If money’s not received in time, the bank will go after the creditor not
the business.
3. Acquiring needed inventory
a. To prosper in today’s markets a firm must make its goods available through buying large
inventories resulting in big expenses.
b. Carefully constructed inventory policy assists in managing the firm’s available funds and
maximizing profitability. Ex. ice-cream sellers have a bigger inventory in summer for
obvious reasons.
c. Innovations such as just-in-time inventory help reduce the amount of funds tie up in
inventory.
d. A poorly managed inventory system can seriously affect the cash flow and drain its
finances dry
4. Making capital expenditures
a. Capital expenditures: major investments in either tangible long-term assets such as land,
buildings, and equipment, or intangible assets such as patents, trademarks, etc. Each used
to further improve the business in some way.
b. Capital expenditures can cost large sums of money without the guarantee of commercial
success. Therefore, the company needs to weigh in on what’s best for the firm through
long-term financing.

Alternative sources of funds

A firm can seek to raise capital through borrowing money (debt), selling ownership (equity), or earning
profits (retained earnings)
a. Debt financing: refers to funds raised through various forms of borrowing that must be
repaid
b. Equity financing: refers to funds raised from within the firm or through the sale of
ownership in the firm
c. Short-term financing: borrowed funds that are needed for one year or less.
d. Long-term financing: borrowed funds that are needed for a period longer than one year.
Arjun Nigam

Obtaining short-term financing: most small businesses want short-term financing which is provided
through various ways:
1. Trade credit or (accounts payable) –
a. It’s the most widely used source of short-term financing. It’s the practice of buying goods
now and paying for them later.
b. The invoice (bill) usually comes with terms such as 2/10 net 30. Which means that the
purchaser will get a 2% discount if he manages to pay within 10 days otherwise the bill is
due in 30 days if he refuses to take advantage of the discount. Businesses should always
take advantage of this to save costs
c. Some suppliers hesitate to give credit to organizations with poor credit rating, no credit
history or a history of slow payment. In such cases, the supplier insists that the consumer
sign a promissory note (a written contract with a promise to pay) as a condition for
obtaining credit.

2. Family and friends

a. Many small firms obtain short-term funds by borrowing from family and friends. This is
not advisable because it’s better to obtain a loan from a bank because it helps the business
understand the risk and help analyze your firm’s future financial needs.
b. Entrepreneurs have been going to banks for funds instead of family in recent years.
c. However, if a business wants to borrow from a family or friends they should:
i. Agree on specific loan terms
ii. Put the agreement in writing
iii. Arrange for a repayment in the same way they would for a bank
d. They must follow these steps to keep family and friendships intact.
3. Commercial banks
a. They are reluctant to lend money to small growing businesses however, a promising and
a well-organized business is to get a long for sure
b. How much a business borrows and for how long often depends on the type of the
business and quickly the business can make sales from bank’s money. Ex. a farmer
borrows money for growing crops in spring and makes profit in fall so he will repay the
loan after the harvest in fall
c. It is necessary and advisable to establish a strong, friendly relationship with the banker
since they can help you in need since they also want to make money off the interest of the
loan.
4. Different forms of short-term loans
a. A secured loan: a loan backed by something valuable such as property. If the firm fails
to pay the loan the lender may take possession of the firm’s assets.
i. Pledging: are often used by businesses as collateral for a loan; this process is
called pledging. Some percentage of the value of accounts receivables pledged
(usually about 75%) is advanced to the borrowing firm.
b. An unsecured loan: a loan that’s not backed by any specific assets. Usually given to
long standing customers or financially stable customers.
c. Line of credit: a given amount of unsecured funds a bank will lend to a business. Done
in order to speed up the process of borrowing funds.
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d. Revolving credit agreement: a line of credit that is guaranteed by the bank. Usually
done to obtain funds for unexpected cash needs.
e. Commerce finance companies: organizations that make short-term loans to borrowers
who offer tangible assets as collateral.
f. Factoring accounts receivable: the process of selling accounts receivable for cash.
Factoring is a not a loan it’s the selling of an asset. These accounts receivables are of
consumers who are slow to pay or cause the firm to have a large amount of money due to
it. A factor is a market agent (usually a financial institution) that agrees to buy the
accounts receivable from the firm. The factor collects and keeps the money owed to the
firm from its customers.
g. Commercial paper: unsecured promissory notes of $100,000 and up, that mature in a
year or less. It’s an effective way of obtaining funds when a business just needs for a few
months and wants to lower rates than that of a bank.
h. Credit card: are readily available lines of credit to a business that can save time. They
are very expensive and risky. Missing a monthly payment can be very penalising.

Obtaining long-term financing: long term funding comes from two major types of financing:
1. Debt Financing: funds that have been raised through borrowing.
a. Term-loan agreement: is a promissory note that requires the borrower to repay the loan in
specified installments.
i. A major advantage is that the interest paid is tax deductible.
ii. Risk/return trade off: the principle that the greater the risk a lender takes in
making a long, the higher the interest rate required.
b. Issuing bonds: bond is a long-term debt obligation of a corporation or government. A
company that issues a bond has the legal obligation to make regular interest payments to
investors and to repay the entire bond principal amount at a prescribed time, called
maturity date.
i. Institutional investors are large organizations such as pension funds, mutual
funds, etc. that invest their own or invest funds of others.
ii. Interest – the payment the issuer of the bound makes to the bondholders for use
of borrowed money
iii. Denomination: amount of debt represented by a bond.
iv. Maturity date – the exact date the issuer of a bond must pay the principal to the
bondholder
v. Ex. A company issues a bond of $1000 with $50 interest/year and a maturity date
of 2015. If John were to buy the bond the company owes him $1000 at the end of
2015 while giving him his yearly interest payments till then.
vi. Advantages and disadvantages of bonds

Advantages Disadvantages

Bondholders are creditors, not Bonds increase debt (long-term

owners. Therefore, they have no liabilities and risk) and may affect the
control over the firm. Management market’s perception of the firm.
retains control.
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Interest paid on bonds is tax Paying interest on bonds is a legal

deductible obligation. If interest is not paid,
bondholders can take legal action.
When the bonds are repaid the debt The face value (denomination) of
obligation is eliminated bonds must be repaid on time on the
maturity date. Without careful
Bonds can be repaid before the planning it can cause cash flow
maturity date if they contain a call problems.
provision. Some may also be
converted to shares.

vii. Different classes of bonds. There are two different types of bonds:
1. Unsecured bonds – bonds not backed by any collateral called “debenture
bonds”
2. Secured bonds – bonds are backed by some tangible assets such as
equipment or building
viii. Special bond features
1. Sinking funds: a reserve account in which the issuer of a bond
periodically retires some part of the bond principal prior to maturity so
that enough capital will be accumulated by the time they are due.
2. Sinking funds are attractive for the following reasons:

1. They provide for an orderly repayment of the bond

2. They reduce the risk the bond will not be paid
3. The market price for a bond is supported because the risk is
reduced.

3. Provision: a callable bond permits the bond issuer to pay off the bond’s
principal before the maturity date. Bond issuers do this if there’s a
chance to reduce the interest rate
4. A convertible bond is a bond that can be converted to a share of the
issuing company. This is usually an incentive for an investor to buy the
firm’s bonds.
2. Equity financing
a. Equity financing from stocks: represent ownership in a company.
b. The first time a company offers to sell new stock to the general public is called an initial
public offering.
c. Dividends are part of a firm’s profits that maybe distributed to shareholders as either cash
payments or additional shares.
d. Advantages and disadvantages of issuing stocks

Advantages Disadvantages
Shareholders don’t have to be repaid As owners of the company the
for their investment in the firm shareholders have the right to vote for
the company’s board of director.
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There’s no legal obligation to pay Dividends are paid out profit after
dividends to shareholders. Therefore, taxes therefore they are not tax
retained earnings can be reinvested in deductible
the firm.
Selling stock has no risk since it Management’s decision can be
creates no debt. affected by the need to keep
stockholders happy.

e. There are two types of shares: common shares and preferred shares.
i. Common shares: basic form of ownership in company. Shareholders have the
right to vote and the right to dividends
ii. Preferred shares: stocks that gives owners preference in the payment of dividends
as well as claim on the firm’s asset in the case of bankruptcy. Ex. if the firm
decided to give $100 in dividends to its shareholders, the preferred shareholder’s
dividends will be covered first and the common shareholders will get it after
them.
iii. Special features of preferred shares:

f. Equity financing from retained earnings:

i. Retained earnings are the profits that the company keeps and reinvests in the firm
ii. They are ideal however; they are usually very less compared to what’s required.
g. Equity financing from venture capital:
i. Venture capital: is money that is invested in new or emerging companies that are
perceived as having great profit potential.
ii. A venture capitalist who invests in a company gets ownership and expects more
than average return.
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Chapter 12

Chapter 12 Notes

Marketing: The process of determining customer needs and wants and then developing goods and
services that meet or exceed these expectations

The main term in marketing is market. Recall that a market is defined as a group of people with
unsatisfied wants and needs who have the resources and the willingness to buy products. A market is,
therefore, created as a result of this demand for goods and services. What marketers do at any particular
time depends on what needs to be done to fill customers’ needs. These wants and needs continually
change. For example, today we see an increasing focus on green marketing, which refers to marketing
efforts to produce, promote, and reclaim environmentally-sensitive products

The evolution of marketing involved four eras: (1) production, (2) sales, (3) marketing concept, and (4)
customer relationship.

 Production Era - From the time the first European settlers arrived in Canada until the start of the
1900s, the general philosophy of business was to produce as much as possible. Given the limited
production capabilities and the vast demand for products in those days, such a production
orientation was both logical and profitable, as demand exceeded supply. Manufacturers focused
on production, as most goods were bought as soon as they became available. The greatest
marketing need was for distribution and storage.
 Sales Era - By the 1920s, businesses had developed mass production techniques (e.g.,
automobile assembly lines) and production capacity often exceeded the immediate market
demand. Therefore, the business philosophy turned from an emphasis on production to an
emphasis on selling. Most companies emphasized selling and advertising in an effort to persuade
consumers to buy existing products. Few offered service after the sale.
 The Marketing Concept Era - After the Second World War ended in 1945, there was a
tremendous demand for goods and services among the returning soldiers who were starting new
careers and beginning families. Those postwar years launched the baby boom (a sudden increase
in the birth rate) and a boom in consumer spending. Competition for the consumer’s dollar was
fierce. Organizations recognized the need to be responsive to consumers if they wanted to get
their business, and a philosophy called the marketing concept emerged in the 1950s.

The marketing concept had three parts:

1. A customer orientation. Find out what consumers want and provide it for them.
(Note the emphasis on meeting consumer needs rather than on promotion or sales.)
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2. A service orientation. Ensure that everyone in the organization has the same
objective: customer satisfaction. This should be a total and integrated organizational
effort. That is, everyone from the president of the firm to the delivery people should be
customer oriented

3. A profit orientation. Focus on those goods and services that will earn the most
profit and enable the organization to survive and expand to serve more consumer wants
and needs

 The Customer Relationship Era (1990s) - The process of learning as much as possible about
customers and doing everything you can to satisfy them—or even exceed their expectations—
with goods and services over time.

Non-Profit Organizations Prosper from Marketing

 Politicians use marketing to get votes. Provinces use marketing to attract new businesses and
tourists. Some provinces, for example, have competed to get automobile companies from other
countries to locate plants in their area. Schools use marketing to attract new students. Other
organizations, such as arts groups and social groups, also use marketing.

The Marketing Mix

1. Product
2. Price
3. Place
4. Promotion
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Designing a Product to Meet Needs: A product is any physical

good, service, or idea that satisfies a want or need plus anything
that would enhance the product in the eyes of consumers, such
as the brand. It’s a good idea at this point to do concept testing.
That is, you develop an accurate description of your product and
ask people, in person or online, whether the concept (the idea of
the restaurant and the kind of meals you intend to offer) appeals
to them. Test marketing: The process of testing products among
potential users.

Brand name: A word, device (design, shape, sound, or colour), or

combination of these used to distinguish a seller’s goods or
services from those of competitors.
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Setting an Appropriate Price:

Price: The money or other consideration (including other goods and services) exchanged for the
ownership or use of a good or service
Getting the Product to the Right Place:
In addition to having a restaurant, you may want to sell your products to supermarkets or health food
stores, or you may want to sell them through organizations that specialize in distributing food products.
Such organizations, called intermediaries, are in the middle of a series of organizations that distribute
goods from producers to consumers. (The more traditional word for such companies is middlemen.)
Getting the product to consumers when and where they want it is critical to market success.

Developing an Effective Promotional Strategy:

Promotion: All of the techniques sellers use to motivate customers to buy their products. They include
advertising, personal selling, public relations, and various sales promotion efforts, such as coupons and
samples. This last step in the marketing process often includes relationship building with customers. That
includes responding to suggestions consumers may make to improve the products or their marketing
(including price and packaging).17 Post-purchase, or after-sale, service may include refusing payment for
meals that weren’t satisfactory and making other adjustments to ensure consumer satisfaction. Marketing
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is an ongoing process. To remain competitive, companies must continually adapt to changes in the market
and to changes in consumer wants and needs.
Providing Marketers with Information:
Marketing research: The analysis of markets to determine opportunities and challenges, and to find the
information needed to make good decisions.
Marketing research helps determine what customers have purchased in the past and what situational
changes have occurred to alter not only what consumers want now but also what they’re likely to want in
the future. In addition, marketers conduct research on business trends, the ecological impact of their
decisions, international trends, and more.
The Marketing Research Process
A simplified marketing research process consists of at least four key steps:
1. Defining the question (problem or opportunity) and determining the present situation
2. Collecting data: secondary data - Information that has already been compiled by others
and published in journals and books or made available online. Primary data - Data that
you gather yourself (observation) (not from secondary sources such as books and
magazines). Personal interviews are a face-to-face opportunity to ask consumers
prepared questions. Focus group: A small group of people who meet under the direction
of a discussion leader to communicate their opinions about an organization, its products,
or other issues.
3. Analyzing the research data
4. Choosing the best solution and implementing
The Marketing Environment:
Environmental scanning is the
process of identifying the factors that can
affect marketing success.

Two Different Markets:

1. Consumer market: All individuals or households that want goods and services for personal
consumption or use.
2. Business-to-business (B2B) market: All individuals and organizations that want goods and
services to use in producing other goods and services or to sell, rent, or supply goods to others.
Oil drilling bits, cash registers, display cases, office desks, public accounting audits, and
corporate legal advice are examples of B2B goods and services
Consumer Market:
Market segmentation: The process of dividing the total market into groups whose members have similar
characteristics.
Target marketing: Marketing directed toward those groups (market segments) an organization decides it
can serve profitably.
Segmenting the Consumer Market:
 Geographic segmentation: Dividing the market by geographic area.
 Demographic segmentation: Dividing the market by age, income, and education level
 Psychographic segmentation: Dividing the market according to personality or lifestyle
(activities, interests, and opinions
 Behavioural segmentation: Dividing the market based on behaviour with or toward a product
o Benefits sought
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o Usage rate
o User status

Usually, the best segmentation strategy is to use a combination of these bases to come up with a consumer
profile (a target market or more) that is sizable, reachable, and profitable
Reaching Smaller Market Segments:
 Niche marketing: The process of finding small but profitable market segments and designing or
finding products for them.
 One-to-one (individual) marketing: Developing a unique mix of goods and services for each
individual customer
Moving Towards Relationship Marketing
Mass marketing: Developing products and promotions to please large groups of people.
Relationship marketing: Marketing strategy with the goal of keeping individual customers over time by
offering them products that exactly meet their requirements. Relationship marketing depends greatly on
understanding consumers and responding quickly to their wants and needs.
Consumer Decision Making Process:

Learning involves changes in an individual’s behaviour resulting from previous experiences and
information
Reference group is the group that an individual uses as a reference point in the formation of his or her
beliefs, attitudes, values, or behaviours
Culture refers to the set of values, beliefs, rules, and institutions held by a specific group of people.
These are transmitted from one generation to another in a given society.
Subculture is the set of values, attitudes, and ways of doing things that results from belonging to a
certain ethnic group, religious group, or other group with which one closely identifies (e.g., teenagers).
The subculture is one small part of the larger culture. Your subculture may prefer rap and hip-hop music,
while your parents’ subculture may prefer light jazz.
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Cognitive dissonance is a type of psychological conflict that can occur after a purchase. Consumers who
make a major purchase may have doubts about whether they got the best product at the best price.

Business to Business Market

B2B marketers include manufacturers, intermediaries such as retailers, institutions (e.g., hospitals,
schools, and charities), and the government
Several factors make B2B marketing different; some of the more important ones are as follows:
1. The number of customers in the B2B market is relatively few. That is, there are far fewer
construction firms or mining operations compared to the more than 33 million potential
customers in the Canadian consumer market.
2. The size of business customers is relatively large. That is, a few large organizations account for
most of the employment and production of various goods and services. Nonetheless, there are
many small- to medium-sized firms in Canada that together make an attractive market.
3. B2B markets tend to be geographically concentrated. For example, diamonds tend to be
concentrated in Canada’s territories. Consequently, marketing efforts may be concentrated in a
particular geographic area and distribution problems can be minimized by locating warehouses
near industrial centres.
4. Business buyers are generally thought to be more rational (as opposed to emotional) than ultimate
consumers in their selection of goods and services. They use specifications and often more
carefully weigh the total product offer, including quality, price, and service.
5. B2Bsalestendtobedirect.Manufacturerssellproducts, such as tires, directly to auto manufacturers
but tend to use intermediaries, such as wholesalers and retailers, to sell to ultimate consumers.
6. ThereismuchmoreemphasisonpersonalsellinginB2Bmarketsthaninconsumer markets. Whereas
consumer promotions are based more on advertising, B2B sales are based on personal selling.
That is because there are fewer customers who demand more personal selling.
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Chapter 13
Operations Management: Fitting Into the Big Picture
Operations management is all about the ability of a company to control and/or improve its business
processes. In fact, operations management goes beyond the ability to control or improve, and
fundamentally focuses on the design and development of such processes as well.

Successful organizations understand the interconnectivity of strategy, business structure, and operations,
and seek to ensure that all three are integrated into the decision-making process and that structure and
operations are aligned and in support of the organization’s strategic intent
When we visualize the interconnectivity of these three business system components, we should conclude
the following:
 Strategy is what we want to accomplish.
 The business structure should provide the controls and the formal communication and
responsibility framework that will guide the organization as it seeks to realize its strategy.
 Operations are understood to be the actual processes employed, which, when combined with the
utilization of the organization’s capital assets, enable strategic outcomes to be actualized.
Successful businesses look to
establish within their business systems
competitive advantages that enable them
to deliver their products and/or services
to their targeted market segments in a
manner superior to that of the
competition.

Responsibilities of Operations Managers

Operations Management is the effective design, development, and management of the processes,
procedures, and practices embedded within an organization’s business system for the purpose of
achieving its strategic intent
In broad terms, the mandate of the operations management team can be thought of as encompassing three
broad categories of responsibility. The intent of the operations management team is to design and develop
such processes, procedures, and practices in a way that takes into consideration time requirements
associated with getting products/services to the market. In addition, decisions need to be made relating to
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the quality/cost trade-offs that are designed to support the value proposition being communicated to the
target market by the marketing team via the organization’s marketing mix strategy.
Areas of responsibility:
 Process Management is the design and development of the work flow and connectivity of the
transformation requirements (processes) needed to ensure that an organization’s products and
services are efficiently produced and effectively delivered to the marketplace.
 Supply Chain Management is the management of the interdependencies among suppliers,
manufacturers, and distributors; it seeks to develop the terms and conditions that will enable all
parties to efficiently and effectively meet their obligations to one another due to their business
relationships. It includes interactions such as the purchase of materials from suppliers and the
coordination of just-in-time (JIT) inventory practices
 Product/Service Management: refers to the variety of activities that commence with the design
and development of potential new products in R&D and extend to the post-purchase support of
products/services now in the hands of customers.
The Organization’s Value Chain
Techno-savvy production processes, ware- house and distribution logistical software, sophisticated
material procurement analytical methodologies, and enhanced outsourcing and offshoring strategies all
make for increasingly complex operations management arenas. To try to maintain some order to our
discussion, and to gain a full appreciation of the complexity of the interconnectivity across the
organization, our focus will be on tying this discussion to a business concept called value chain analysis.
The value chain is a business concept that was first proposed by Michael Porter of the Harvard Business
School in 1985. By “value,” it is implied that the benefit a decision would deliver to the product or
service would outweigh the cost associated with it, thereby enhancing its value. Value Maximization
refers to maximizing the benefits (price/ quality comparison) that an individual or set of customers will
realize as a result of using a product or service.
At the centre of the value chain model is the underlying principle that managers should seek to make
decisions across the chain’s activity areas in a manner that contributes positively to the overall value of
the products or services being produced or offered.

Primary Activities relate to the specific activities through which the development and transformation of a
product or service occurs as it is produced and delivered to the marketplace

Inbound Logistics refers to the management of supplier relation- ships relating to those parts and/ or
components, or finished products, that are brought into the organization in order to produce finished
products for delivery to the marketplace.
Operations refers to the manufacturing and/or product change processes set up to en- sure that the final
product the organization is manufacturing or handling is ready for the marketplace.
Outbound Logistics refers to getting the finished product to the customer via a distribution channel that is
accessible, convenient, and able to minimize stockouts and other sales impediment factors.
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Marketing and Sales refers to those activities that create pro- file and awareness for the organization’s
products, services, or brand(s), and the benefits de- rived from the acquisition and use of such products or
services.

Customer Service refers to the support provided to customers before, during, and following the purchase
process.

Customer service can be thought of as technical support, repair support, warranty service work,
installation, replacement parts management, upgrading options, and customer training

The development of strong supplier and distributor relationships is invaluable to the organization with
regard to understanding market trends and shifts, maintaining a watchful eye on competitive innovation,
and ensuring that cost control management practices are put into place throughout the supply chain in
order to maintain competitive pricing strategies.

Support Activities are those areas within the organization that are not directly associated with the actual
processes the organization uses to produce products and/or deliver services but that are an integral part of
the sup- port structure the primary activities rely on to successfully execute strategy.

 The IT department, which will collaborate with the operations department on the development
and application of new technologies in support of the value chain process.
 The research and development and engineering departments, which primarily focus on new
product development, existing product enhancement, and process design and development.
 Human resource management, which assists in recruitment, employee development, and support
services for employees.
 Other supporting departments such as finance, accounting, legal, and environmental safety.

Operations Cycle is the alignment of the operational tasks within an organization by its management
team in order to meet the strategic outcomes defined in the organization’s business strategy.
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Process Standardization is the design and utilization of common platforms and common task
sequencing to produce/develop a variety of products or services.

Process Simplification is the design and utilization of a minimum number of tasks when developing
products and/or services.

Operations managers need to understand the strategic intent of the organization and, using this
information, translate it into the action plans that will drive the execution of the organization’s strategy.
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Process Design, Layout, and Execution refers to the assessment and implementation of the tasks
necessary to get the required work accomplished, and how such tasks will be grouped and sequenced to
ensure that the most efficient and effective processes are utilized in the production of products and/or
services.

An easy way to remember the key fundamentals associated with process design, layout, and execution is
by the acronym DICE—define, identify, create, and execute

PERT Chart is a scheduling methodology that focuses on task sequencing and the identification of the
critical path of steps that will most greatly impact the ability to complete a project, and the length of time
needed for completion.

Gantt Chart is a methodology used to schedule the steps associated with a project and the time required
to complete each step.

Materials Management refers to the management of the inputs required in order to develop the products
or services that the organization is intent on deliver- ing to the marketplace.

Materials management could be associated with inputs/items such as:

 components for assembly purposes

 parts for repair and maintenance of products sold
 raw materials, such as molten aluminum for the fabrication of transmission casings or pistons for
automobiles
 hazardous waste disposal
 sanitary practices for the safe handling of food at restaurants
 regulation compliance for the handling of goods such as prescription drugs
 the handling of fully finished goods that the organization has purchased with the intent of
reselling such items through its retail outlets

Facility Design and Layout refers to infrastructure layout and related facility components that will be
required to house and support the processes and materials used by the organization.

Capacity refers to the maximum amount of product that can be produced, or services delivered, given
facility, equipment, and process constraints.

Decisions relating to capacity, plant size (footprint), and plant layout often have to be made years in
advance, based on estimated sales forecasts given anticipated market conditions

Capital Asset Evaluation and Acquisition refers to an assessment by the operations management team of
the state of current capital assets and a determination as to their applicability to meeting the needs of the
organization

Supply Chain Management refers to the development of the supply chain structure and the
accumulation of the necessary information to make effective supply chain decisions.

When we think about supply chain management in general, three areas of ongoing responsibility come to
mind. These are as follows:

1. Supply chain planning

2. Supply chain operating execution
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3. Supply chain performance evaluation

Examples of activities that form a core part of the planning mode are:

 Making decisions relating to outsourcing of various supply chain functions versus keeping such
activities in-house.
 Assessing the various software and ebusiness services that will be required to effectively manage
supply chain tasks.
 Analyzing sales forecasts to determine appropriate product quantities to purchase.
 Designing the transportation and warehouse networks to effectively manage the flow of products
through the organization’s value chain.

Supply Chain Operating Execution refers to the execution of the specific tasks necessary to ensure that
key performance results are achieved.

Supply chain performance evaluation refers to the critical outcomes that the supply chain must achieve in
support of the organization’s overall operating performance. Two critical outcomes in this regard are (1)
maximum utilization of the capital asset base, and (2) minimization of the time involved within the cash
operating cycle. Maximization of the capital asset base has been alluded to earlier in this chapter.

Cash Operating Cycle (COC) refers to the amount of time it takes for an organization to recover the
cash (product is sold and money is received) it has paid out for the development, production and
distribution of products.

In general, the shorter the cash operating cycle, the more quickly the organization is getting back the cash
it has expended on producing its goods and services and, therefore, the less the organization needs to rely
on cash reserves or short-term debt financing to cover the costs of the expenditures incurred.
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Product/Service Management:

 Existing product/service changes relates to the existing products and/or the existing level of
services offered to the marketplace within which the organization currently competes.
 New product opportunities: refers to the development of new products for market opportunities
that exist today and for which research has concluded there is near-term revenue potential
 Long-reach opportunities: refers to the investment in, and development of, new product research
for potentially emerging markets of the future

A key weapon in this ongoing challenge to preserve quality and maintain the product standards expected
by customers in the face of pressure to reduce costs lies with the organization’s culture and the
development of performance standards
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ISO (International Organization for Standardization) is the world’s largest developer and publisher of
international standards.

Six Sigma is a methodology that focuses on a philosophy of total improvement.

TQM (Total Quality Management) is a broad-based approach to managing quality within the organization

These fundamentals can be summarized as follows:

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 Quality initiatives, such as those described above, are successful only if they are accompanied by
strong management support and commitment.
 To be successful, quality initiatives must be supported by a well-structured approach and
deployment process. This needs to include clear identification of the roles and responsibilities of
those involved. Specific, measurable, actionable, and controllable objectives must be identified.
 Quality initiatives must be viewed as requiring a team-based approach. Involvement, input,
rewards, and recognition must be shared with all involved.
 The progress and results of the initiatives must be effectively communicated to all involved. The
sharing of knowledge and successes is fundamental to developing a quality-focused culture